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THE 
BUSINESS 

CONSCIENCE 



LUTHER H. HODGES 



PRENTICE-HALL, INC., Englewood Cliffs, N. J. 



Mr. Hodges' royalties for this book are being assigned 
to the United Negro College Fund (USA) and to the 
Methodist Colleges of North Carolina. 



THE BUSINESS CONSCIENCE, by Luther H. Hodges 



Copyright under International and Pan-American Copyright 
Conventions 



© 1963 by Luther H. Hodges. All rights reserved including the 
right to reproduce this book, or any portions thereof, in any 
form, except for the inclusion of brief quotations in a review. 



Prentice-Hall International, Inc. 
{London, Tokyo, Sydney, Paris) 
Prentice-Hall of Canada, Ltd. 
Prentice-Hall de Mexico, S. A. 



Printed in the United States of America 09326— T 



1 



DEDICATION 



This book is dedicated to my associates 
in the United States Department of Commerce. 




"And why beholdest thou the mote that is in thy broth- 
er's eye, but perceivest not the beam that is in thine own 
eye?" (Luke 6.41) "Thou therefore which teachest an- 
other, teachest thou not thyself?" (Romans 2.21) These 
biblical challenges came to my mind when I was asked 
to write a book on the ethical and social responsibilities 
of businessmen. 

Would not most anything I could say on business eth- 
ics inevitably cast me in the presumptuous role of lec- 
turer on morals to my fellow businessmen? 

Notwithstanding the affirmative reply which I gave, 
and still give, to this question, I was persuaded to go ahead 
with the project. The defense, or excuse, for my pre- 
sumptuousness is that everywhere across our land we 
must take our exhortations to live more ethical, moral 
lives from less than perfect men. And it would be a sad- 
der world indeed if these men were silent because they 



va 



• • PREFACE • • 

were also human and possessed of the usual quota of hu- 
man imperfections. 

The idea of writing this book came from a panel dis- 
cussion at Columbia University in December 1961 on the 
subject of the ethical and social responsibilities of busi- 
nessmen. I was one of the three panel participants and I 
talked at that time about some of the things that I had ex- 
perienced in my business and government careers that 
touched on matters of business morality. Afterward, the 
publisher asked me to expand on what I had said and put 
it into a book. 

I hope the reader will understand that I do not think I 
have said the best word or the last word on business eth- 
ics. 

I gratefully acknowledge advice and assistance from 
numerous persons, including several of my associates in 
the Department of Commerce, without whose aid the 
manuscript could not have been finished within the time 
limits requested by the publisher. 

This volume is offered to the reader with the hope that 
it will be of some help, particularly to young businessmen 
who believe in our American system and to whom we 
must look for its improvement and preservation. 



Luther H. Hodges 



Washington, D. C. 
December 14, 1962 



vm 






lenit 



ontents 





Part One 






A CALL FOR ACTION 




I 


The Confidence Breakers 


3 


2 


Meeting the Problem 


22 


3 


The Gray Area 


36 


4 


The Lesson of History 

Part Two 

THE MANY ROLES 
OF THE BUSINESSMAN 


51 


5 


The Businessman after Hours 


73 


6 


Business and Government 


96 



Business and the National Interest 1 1 1 



IX 





• • CONTENTS • • 




8 


Business and the Public 


127 


9 


The Ethics of Fair Competition 


148 





The Employer's Expanding Role 


168 


i 


Business Goes Abroad 


192 



Part Three 
THE TOOLS FOR THE JOB 

12 The Value of Ethical Codes___ 203 

13 Ethics Education and the Educators — 216^ 

14 Good Ethics Start at the Top 229 

Appendix 243 



■ *. 



I I 



I • 



VI, 



. '•» 



1 



THE CONFIDENCE 
BREAKERS 



^-^etting bilked out of more than a million dollars by 
\^A your friends and trusted business associates is a 
(^y sobering experience, at the very least. The best 
you can say is that the experience doesn't befall everyone. 
In that sense, you can feel a kinship with the man in the 
familiar Lincoln story who commented, while being rid- 
den out of town on a rail: "If it wasn't for the honor, I'd 
just as soon walk." 

In my case, the bilking was all the more disturbing be- 
cause my own money wasn't involved. It was your 
money; it belonged to all the people of the United States. 
I cannot be proud of my role in this incident, although 
I acted with a clear conscience. I relate it now because it 
is directly pertinent to the subject of business ethics. And 
it brought home to me a particular problem that faces any 



• • THE BUSINESS CONSCIENCE • • 

man who would become a public servant: he must give 
special scrutiny to all requests for help from special in- 
terest groups, even when close friends are involved. 

The episode I've mentioned occurred during my serv- 
ice in the federal government during World War II. 
After spending nearly a quarter century in the textile in- 
dustry, I went to Washington in 1944 to offer my serv- 
ices in any capacity useful to the government. I had been 
a foot soldier in World War I but was too old for a uni- 
form in the second one. Nonetheless, I was determined to 
make a personal contribution and asked— rather boldly, 
as I think of it now— for the toughest assignment avail- 
able. My wish was granted quickly enough. I was sent to 
the Office of Price Administration with instructions to 
carry out the pricing program for the entire textile in- 
dustry. In this, my first job with the federal government, 
I administered price controls on an annual business vol- 
ume of about $4,000,000,000. It wasn't the toughest job 
in Washington, but it was tough enough. 

As head of OPA's Textile Pricing Division, I had a 
great many experiences that troubled me. It didn't take 
long to discover that even a great war had not banished 
selfishness and greed and their attendant ethical problems. 
And this particular incident was more disturbing than all 
the others. It has bothered me exceedingly through all 
the intervening years as I have pondered the relationships 
among businessmen, their employees, their customers and 
their government. 

My first Washington assignment threw me into direct 
contact— and sometimes conflict— with many friends and 



• • THE BUSINESS CONSCIENCE • • 

former associates in the textile industry. I had known 
many of these men for a long time and I sympathized 
with their problems. I had first-hand knowledge of the 
difficulties they faced. 

As soon as I came on the job, my friends began bom- 
barding me with complaints that they couldn't get serv- 
ices from Washington, couldn't get direct answers to 
simple inquiries, couldn't get the price relief that they 
argued was absolutely necessary for the preservation of 
their mills and the economic survival of their one-indus- 
try communities. 

I'm inclined to be impatient myself and I wanted to see 
these matters handled efficiently and quickly. Realizing 
that paperwork often moves at a notorious crawl in the 
federal government, and needlessly so, I found much 
merit in the complaints that reached me. 

The situation came to a head a few weeks after I 
joined OPA. A group of acquaintances from the textile 
industry, all prominently connected, came to my office 
with a horror story about the bad treatment they were 
receiving from the agency. They pointed out that their 
urgent request for price relief was being shuttled from 
post to pillar with no one taking the time to give them a 
fair hearing. They were being put off and put off, to the 
detriment of their stockholders and their workers. 

I listened sympathetically to this account of frustrating 
inaction, then asked for the facts about their price situa- 
tion. They supplied some information which seemed to 
back up their claim for relief. After that, I was definitely 
leaning in their direction but, before venturing any 



* • THE BUSINESS CONSCIENCE • • 

promises, I looked from face to face, from eye to eye, 
and demanded: "Are you giving me the whole story; 
are you telling me the whole truth; can I count on the 
figures you've given me; and can I be assured that the re- 
lief you ask is fair to the government as well as to your- 
selves? ,, They stated without equivocation that their 
presentation and their facts were completely truthful and 
that I need have no fear on that account. "All right," I 
told them, "I'll put this thing through for you within 
forty-eight hours. I'll get you an answer and give you 
relief, because I want to see this thing move and I want 
to do the right thing." I also added: "You realize I'm 
here as a public servant with some knowledge of the tex- 
tile industry, but I do not know your particular case in 
any detail; I must take your word for what you've said." 
Again I was assured that I had nothing to worry about. 

Despite strong protests from my associates and superi- 
ors in OPA, I pushed the case through to a final, favor- 
able decision. I was quite proud of my success at snipping 
through red tape. It did not cross my mind that, as a 
newly-installed public servant, I should have dealt with 
my old friends at arm's length; I should have made dou- 
bly certain that the information they presented was ac- 
curate. 

Many years later, at a cocktail party, the leader of the 
delegation which had won my support took too many 
drinks and, turning to his group of prominent associates, 
said with great glee, "We certainly bilked old Luther out 
of more than a million dollars that day, didn't we, fel- 
lows?" 



• • THE BUSINESS CONSCIENCE • • 

My friends had lied to me. They had taken advantage 
of my friendship and sympathy. They had ignored the 
overwhelming fact that we were fighting a desperate war 
and had thought only of their interests and not of the 
government and their fellow citizens. I've had little re- 
spect for this particular group since that time but I know 
they represent only a small part of the textile industry. 
Still, their machinations were deeply troubling. I could 
hardly believe that businessmen of 1944 would behave in 
a national crisis much like those referred to as the "rob- 
ber barons" of the year of my birth— 1898. 

Because war with Spain seemed very near and the 
United States was ill prepared, Congress appropriated a 
staggering $50,000,000 for national defense on the day I 
was born, March 9, 1898. Although the amount was vast 
for those days, the New York Times expressed an almost- 
universal view that the money would be spent wisely and 
with absolute integrity. The Times doubted there were 
half a dozen sane people cynical enough to believe that 
waste and corruption would follow. Only the most cal- 
loused could envision chicanery at a time of national 
peril. 

Despite this patriotic optimism, there were calloused 
people in 1898— plenty of them— and they took full 
advantage of the national emergency. For many a busi- 
nessman, the government's desperate need offered an ir- 
resistable opportunity to strike a sharp bargain. Ships and 
supplies of all kinds were delivered at inflated prices; 
especially ships, because the need for them was greatest. 

Wartime profiteering did not trouble the consciences 



• • THE BUSINESS CONSCIENCE • • 

of some magnates in that era. Padded profits were re- 
garded as the just reward for developing the nation; for 
building the greatest industrial complex on earth. For 
such men, industrialization was a religion in itself —an end 
that excused almost any means. Andrew Carnegie wrote 
widely about his personal creed, arguing that "the man 
who makes two blades of grass grow where one grew be- 
fore is a public benefactor." Working from that thesis, 
the old Scotsman was able to rationalize all kinds of 
shoddy business tactics. And William H. Vanderbilt 
could say, "The public be damned— I am working for my 
stockholders." Indeed, business morality had changed 
very little from the time of Vanderbilt's father, the old 
Commodore, who once snorted, "What do I care about 
the law— ain't I got the power?" 

We can be thankful that the ethics of the business 
community have changed a great deal for the better since 
the year of my birth. Businessmen no longer boast that 
they have a power which exceeds the law. Nor do they 
crassly damn their customers or maintain patently illegal 
rail and steel combines. The change since 1898 has been 
so marked, in fact, that it would be easy to wallow in a 
sea of self-satisfaction with things as they stand. That, in 
itself, is a tempting danger. Complacency could lead us 
back down the road to 1898. 

Whenever this euphoria beckons me, I reflect on my 
experiences during World War II. That's a sure way to 
get my feet back on the ground. 

Like the industrialists of McKinley's day, the textile 
men who duped me in 1944 didn't feel they were doing 



• • THE BUSINESS CONSCIENCE - • 

anything dishonest. They were just playing the old game 
of "beating the government" and getting away with it. 
And they were having fun taking old Luther for a ride. 

One reason they could feel comfortable about their de- 
ceit was the fact that other businessmen in other indus- 
tries were doing the same sort of thing. Marshall Clinard 
has reported in The Black Market that two out of every 
three manufacturers and wholesalers investigated in 1944 
were found guilty of violating OPA regulations. And no 
doubt these violations were carried out with what passed 
for a clear conscience— the offenders rationalizing that 
controls were hateful and inimicable to the American 
system and therefore something to be flouted. It made no 
difference that controls were necessary and fully sup- 
ported by the great majority of the American people. 

In 1944 alone, some 900,000 OPA violations of all lands 
were brought before various agencies— a total approxi- 
mately equal to "ordinary crimes" recorded by police in 
the same year. You can't look at these statistics and feel 
terribly superior to the "robber barons" of 1898. 

I was shocked on more than one occasion, as most of us 
were, at the way some people behaved in the face of war- 
time scarcities— the shortages of sugar, gasoline, hotel 
rooms, train accommodations. Some of the things that 
were done, the bribes given, the deals engineered, the 
promises made, were frightening. Each helped to weaken 
the moral fibre of our nation, and we have seen the results 
since the war. 

Before I took the wartime job in Washington, one of 
my department sales managers came to me smiling and an- 



• * THE BUSINESS CONSCIENCE • • 

nounced very proudly that he had been able to get fif- 
teen pounds of fresh butter through the black market. He 
was so puffed up, in fact, that he could let the boss have 
three pounds of it— the only time someone literally tried 
to butter me up. I rejected the offer and we had a little 
talk about the responsibilities of a good citizen. I hoped 
it would do some good but apparently it didn't. This man 
lasted with the company 'less than two years after the 
war. The kind of thinking and the kind of character that 
allowed him to traffic in black market butter for his fam- 
ily and friends carried over into his dealings with our 
customers. 

If the crusading fervor of wartime failed to quell the 
spirit of '98, peace has done no better. In my memory, 
there never was a case so deeply disturbing as the peace- 
time price-fixing conspiracy in the electrical machinery 
industry. 

Actually, according to Fortune magazine, the roots of 
the plot can be traced to the war. Just like people I knew 
in the textile industry, the electrical machinery people 
played "beat the government" during OPA days. Fortune 
has reported they used to meet regularly to plan con- 
certed campaigns aimed at getting federal approval for 
higher prices. And once OPA was dismantled, they con- 
tinued their meetings so they could fix prices among 
themselves. There were no guilt feelings, either, as were 
reflected in this statement by a General Electric man to 
Fortune: 

"Sure, collusion was illegal, but it wasn't unethical. It 
wasn't any more unethical than if the companies had a 



10 



• • THE BUSINESS CONSCIENCE * • 

summit conference the way Russia and the West meet. 
Those competitor meetings were just attended by a group 
of distressed individuals who wanted to know where they 
were going." 

The Department of Justice, alerted by identical bids 
on TVA contracts, began unraveling the conspiracy late 
in 1959. The case went before Chief Judge J. Cullen 
Ganey of the U.S. District Court in Philadelphia early 
in 1961. There was no trial; the defendants admitted their 
guilt. 

For as long as eight years, according to the formal 
charges, these men had conspired to fix prices, rig bids 
and divide markets on electrical equipment worth 
$1,750,000,000 a year. To do this, they had created a 
series of cartels— a device as alien to the spirit of Ameri- 
can enterprise as state socialism. 

Before passing sentence, Judge Ganey took pains to 
put the case in perspective: "This is a shocking indict- 
ment of a vast section of our economy, for what is really 
at stake here is the survival of the kind of economy under 
which this country has grown great . . ." 

Scornfully, the Judge pointed out that the defendant 
corporations and their executives had "flagrantly mocked 
the image of that economic system of free enterprise 
which we profess to the country and destroyed the model 
which we offer today as a free world alternative to state 
control and eventual dictatorship." 

Judge Ganey was not chastising fringe operators or 
fly-by-nighters. Before him stood forty-five responsible 
businessmen. In their ranks were church deacons and 



11 



• • THE BUSINESS CONSCIENCE • • 

vestrymen, hospital board members, Chamber of Com- 
merce presidents, Little League organizers and bank di- 
rectors. These men represented twenty-nine corporations 
including the giants of the industry, G.E. and Westing- 
house, and other familiar names: Allen-Bradley, Allis- 
Chalmers, Clark Controller, Cutler-Hammer, Federal 
Pacific Electric, Foster Wheeler, I-T-E Circuit Breaker, 
McGraw-Edison, Sangamo Electric, Square D, Worth- 
ington, and others. 

The Judge sent seven executives to jail for thirty days 
each. Twenty-three others were given suspended sen- 
tences and placed on probation for five years. The forty- 
five men and their corporate employers were fined 
$1,924,500. It was the biggest criminal case in the long 
history of the Sherman Act. 

The defendant corporations could not be jailed, 
obviously, and their highest ranking officials, in most in- 
stances, had not been named in the federal indictments. 
But that did not free the corporations and top manage- 
ment from Judge Ganey's censure. 

"This Court ... is not at all unmindful," he announced, 
"that the real blame is to be laid at the doorstep of the 
corporate defendants and those who guide and direct 
their policy . . . for one would be most naive indeed to 
believe that these violations of the law . . . involving so 
many millions upon millions of dollars, were facts un- 
known to those responsible for the conduct of the cor- 
poration . . ." 

Mark W. Cresap Jr., president of Westinghouse, ac- 
cepted the Judge's thesis. "I don't take the position that 



12 



• • THE BUSINESS CONSCIENCE * * 

I can wash my hands of it," he commented. "My view- 
point is that this is a management failure." Ralph J. Cor- 
diner, the board chairman of General Electric and author 
of a strongly-worded company policy demanding strict 
obedience to antitrust laws, did not similarly express him- 
self on the question of top management's responsibility. 

The case was a shocker. All over America, people in 
and out of business were talking about the price-fixing 
conspiracy. We had come to expect so much from busi- 
ness in recent decades that it was almost with disbelief 
that some of us received news of the jail sentences and 
massive fines. Personally, I was stunned by the fact that 
the cream of this segment of our business community 
merited such treatment, which they obviously did. It was 
terribly distressing to realize that the leadership of cor- 
porations so prominent had failed so miserably in their 
responsibility to the nation and in their own ethical re- 
sponsibilities. 

Many Americans felt as I did, I am sure, and quite a 
number expressed their feelings with more eloquence. In 
this connection, I recall particularly a speech made in 
Minneapolis by Mr. Henry Ford II, who happened to be 
a director of one of the electrical machinery companies. 
Said Mr. Ford: 

"There is really only one thing for top executives to do 
at such a time as this. That is to forget the alibis and the 
explanations and have the fortitude— the plain guts— to 
stand up and say: 'This is our failure. We are chagrined 
and sorry. It will not happen again.' " 



13 



• • THE BUSINESS CONSCIENCE • • 

As Secretary of Commerce, I had two reasons for im- 
mediate concern: 

First, I had been in office less than a month and had 
entertained the hope that the Department of Commerce, 
under my direction, would not only serve business in a 
material way but might help provide leadership as well. 
I wanted the Department to assume* this broader role so 
we could actively fight the propaganda attacks directed 
at American business from the Kremlin and similar 
quarters. And I felt we should do all in our power to 
make the morality of U.S. business a bright example for 
people in the newly-independent countries, where Com- 
munist propaganda can easily take root, and for the 
emerging executives in our schools. Three weeks on the 
job and I was fearful that business, instead of impressing 
the rest of the world, might be in danger of surrendering 
its good name at home. Certainly, I thought, it wouldn't 
take many electrical machinery cases to start the tobog- 
gan slide. 

Second, the board chairman of General Electric was 
chairman of the Business Advisory Council— a group of 
about 100 prominent executives banded together many 
years before to advise the Secretary of Commerce. I was 
already having some difficulties with this group, which 
didn't take eagerly to my suggestions that it accept rep- 
resentatives of small business and open up to the press all 
its meetings involving participation by federal officials. I 
was reluctant to add to the existing friction by demand- 
ing that the G.E. executive relinquish the chairmanship, 
although I certainly thought that he should. Meanwhile, 



14 



• • THE BUSINESS CONSCIENCE * - 

reporters and others were demanding to know how I 
would handle the situation. To all these inquiries, I re- 
plied, "He will have to make his own decision." After 
several weeks of soul searching, Mr. Cordinier did resign, 
but with great hesitancy because he thought his action 
might be interpreted as an admission of guilt. He was a 
realistic and practical man whose first thought apparently 
was for where he and his company would come out best. 

The price-fixing case was a hard blow to all business- 
men and most reacted with indignation and shock. How- 
ever, a few people in and out of business greeted the 
disclosures with seeming unconcern, or even jumped to 
the defense of the conspirators. When a handful of critics 
turned up a few weeks later at the annual meeting of 
General Electric stockholders, their comments were 
greeted with cries of "shut up" and "throw him out." A 
prominent Manhattan lawyer, Benjamin Javits, was 
quoted by the Washington Post as telling his fellow share- 
owners that the defendants from G.E. "violated the letter 
of the law, but did not violate the main spirit of free 
enterprise— a fair return on a dollar invested." 

I had a personal encounter with this type of thinking, 
which continues to baffle me, shortly after Judge Ganey 
passed sentence. I was visiting in New York with a very 
close friend, a doctor and former neighbor. The conver- 
sation turned to the price-fixing case and I expressed the 
opinion, with some feeling, I think, that we had come to 
a pretty, pretty pass when companies of such repute 
would be guilty of collusion with competitors. My friend 
made no comment whatever on the moral implications of 



15 



• • THE BUSINESS CONSCIENCE • • 

the case. Instead, he said to me, "Luther, what do you 
think of my buying some General Electric? Public criti- 
cism of their price-fixing has pushed the stock down to 
where I think I could make some money." I have never 
answered my friend's question but I have done a lot of 
thinking about it. And I simply can't understand how this 
friend— belonging to a profession that presumably main- 
tains one of the most exacting ethical codes ever estab- 
lished—could ignore the overriding ethical questions 
involved in the case, could have no apparent feeling for 
the impact on the business community, the public and 
especially the young people— and think only of possible 
personal gain. 

I would not be half so concerned, of course, had the 
electrical machinery conspiracy been the only recent in- 
stance in which businessmen had been guilty of uncon- 
scionable practices. As Henry Ford II put it: 

"I am concerned ... at a recent chain of events that 
could arouse broad popular distrust and that could revive 
old and worn-out hostilities toward American business 
and industry. Too fast and too close together for comfort 
we have had a series of falls from grace involving some of 
our oldest and most respected business firms." 

For example, the president of the Chrysler Corpo- 
ration was found to own stock in several companies 
which were regular Chrysler suppliers; his presidency did 
not long survive the discovery of these conflicts of in- 
terest. And a special Senate committee disclosed how 
certain corrupt businessmen had conspired with equally 
dissolute labor leaders to make "sweetheart" agreements 



16 



• • THE BUSINESS CONSCIENCE • • 

that sold the rights of employees down the river; collec- 
tive bargaining in these cases was a sorry joke. 

Then, too, no one could overlook the enforced depar- 
ture from Washington of Mr. Sherman Adams, who 
showed incredibly bad judgment in accepting costly 
favors from a millionaire businessman whose troubles 
with the federal government were numerous. Worse yet, 
Mr. Adams provided favors of his own for this man 
Goldfine: he made telephone calls from the White House 
on two occasions to inquire about the status of cases 
pending against Goldfine at the SEC and the FTC. 

When Mr. Adams was called before a Congressional 
committee to explain himself, he took the offensive: "Is 
there any member of this committee who has not made a 
phone call for a constituent?" He conveniently ignored 
the fact that there is a world of difference between a 
phone call from a Congressman, who is supposed to serve 
his constituents in a normal way, and a phone call from 
the White House by a man who was said to have a com- 
promising relationship with his "constituent." 

The Sherman Adams case pointed up the most worri- 
some aspect of all instances in which improper conduct 
becomes a public scandal. Inevitably, each disclosure leads 
to a weakening of public confidence in whatever segment 
of society is directly involved. And, more important, we 
are presented with a bad example that will lead some 
people to conclude that lax morality is a way of life in 
high circles. If such thinking gains currency, individuals 
may lower their own standards without even realizing it, 



17 



• • THE BUSINESS CONSCIENCE • • 

because they feel this is the way the world moves for 
successful people. 

I don't suppose anyone in the country was unaware of 
the fact that Sherman Adams was the Assistant to the 
President of the United States. We knew, too, that Mr. 
Adams had a reputation for incorruptibility and exacting 
ethical standards. And it was quite apparent that in many 
spheres, his was the hand that often guided President 
Eisenhower in decisions involving choices between right 
and wrong. 

Now, Mr. Adams evidently was a basically good per- 
son and he certainly was quite efficient. But he did a 
wrong thing. And because he was a decision-maker at 
the very heart of our government, his moral lapse ex- 
erted a tremendous influence on many millions of Ameri- 
cans. If a man of Mr. Adams' reputed integrity and high 
position could do such a thing, there seemed ample justi- 
fication for wondering what lesser men might be up to. 
Right there you have the seeds for the kind of cynicism 
that could be fatal for our society. 

President Eisenhower told a news conference that Mr. 
Adams might have been "imprudent." But he added that 
"I respect him because of his personal and official integ- 
rity. I need him." 

I was not alone in thinking that moral progress suffered 
a major setback when Mr. Eisenhower hemmed and 
hawed so long before ridding himself of Mr. Adams. 

May I hasten to say that unethical or improper conduct 
is not limited to a single political party. Misconduct is 
not partisan— it is personal. 



18 



• • THE BUSINESS CONSCIENCE • • 

The public got another rude shock with the exposure 
of the television quiz show scandals of 1959. The TV 
quiz, you will recall, was an odd folk ritual in which 
lady lawyers, jockeys, sons of prime ministers, and file 
clerks were escorted into "isolation booths" to fritter 
away precious prime network time in silence before pro- 
ducing, after much sweating and grimacing, impressive 
answers to impossible questions. These ordeals became 
the most popular fare on television and it seemed to many 
businessmen that they were virtually indispensable to the 
sale of pills, hair curlers, cigarettes and what not. 

Then came the terrible discovery that, even though 
questions and answers supposedly had been sequestered in 
stout bank vaults, under the personal guard of a seventh 
vice president, the game was a shoddy fake. All the gri- 
macing and sweating was window dressing, carefully re- 
hearsed under the professional eyes of dramatic coaches. 
Contestants had memorized their answers in advance. 

This sorry business scandal reached a climax on No- 
vember 2, 1959 when Charles Van Doren, an English in- 
structor from Columbia University, appeared before a 
Congressional subcommittee. Van Doren, member of a 
prominent literary family, had become a popular idol by 
winning $129,000 on an N.B.C. show called Twenty - 
One. Millions regarded the video performances of this 
clean-cut young man as convincing proof of the fruits of 
scholarship. Time magazine put him on a cover, proclaim- 
ing that he had done a great deal to revive public interest 
in the intellectual life. There was a genuine national let- 
down when Van Doren admitted to Congress that he had 



19 



• • THE BUSINESS CONSCIENCE • • 

been a party to the big fix. And rightly so, for the zeal 
of salesmanship had run riot in this case, snapping another 
important strand in the moral fabric of the country. I 
shall not soon forget a conversation I had along these 
lines with the wife of a European diplomat in Washing- 
ton. 

This woman had been an avid fan of the TV "contests" 
and had used them as object lessons for her young son 
and daughter. She recalled exhorting her children to look 
at the lady who was so smart as to answer every question 
put to her by the panel, and at Mr. Van Doren who 
seemed such a nice and wonderful person. "Look at these 
people, these great Americans," she told her children, 
"and see how smart they are and how they are richly 
rewarded for their knowledge; I want you to emulate 
them and do the same thing." This earnest woman said 
to me, with a break in her voice, "How sad I was later 
when I found that these people were misleading not only 
the American public but misleading all the rest of us who 
look to America for leadership of the highest sort in 
every field of endeavor." 

It would be dangerous indeed for us to feel complacent 
about our moral standards while businessmen violate the 
antitrust laws, conspire with union officials, offer bribes 
to men prominent in government, and deceive millions of 
television viewers in the name of salesmanship. 

Generally speaking, our moral standards in the United 
States are high. I don't think they can be bettered any- 
where in the world. But the minute we become smug 
about this, especially when faced with evidence that there 



20 



. . THE BUSINESS CONSCIENCE • • 

still is plenty of room for improvement, we are lost; we 
are heading back to 1898. 

Jack I. Straus made much the same point a few years 
ago in reporting that his New York department store, 
R. H. Macy & Company, received complaints from only 
seventy-five customers for every 10,000 transactions. 
That was an excellent record but Straus saw no cause for 
self-satisfaction: 

"Those seventy-five aren't seventy-five at all— they are 
seventy-five multiplied by all the people to whom they 
talk. Unless we are sensitive and vigilant the seventy-five 
can become a hundred and the hundred a thousand. That 
is where good will disappears and businesses, in time, 
disappear with it." 



21 



MEETING 
THE PROBLEM 




introducing the President of the United States is 
always a thrill, before any audience. Fve had this 
pleasure a number of times but seldom has the as- 
signment given me more personal satisfaction than when 
I presented President Kennedy to the Business Ethics 
Advisory Council of the Department of Commerce early 
in 1962. 

The Council was a direct outgrowth of the electrical 
machinery price-fixing case. The day after Judge Ganey 
passed sentence, the President was asked at a news con- 
ference if some new move to draft a code of ethics for 
business might be helpful in view of what had happened. 

"I think it would be very beneficial," the President 
replied, "if business groups today would consider what 
they could do to protect themselves from charges of con- 



22 



• - THE BUSINESS CONSCIENCE • • 

flicts of interest of the kind we have recently seen and 
also of the effort made by these large electrical companies 
... I must say I would be interested to watch what prog- 
ress they [the members of the business community] can 
make in that area." 

I discussed the subject later that day with my associates 
in the Department of Commerce. We agreed that our 
Department might be able to act as a catalyst in promot- 
ing serious thought and practical action in the area of 
business morality. Our idea was to call together repre- 
sentatives of business, education and the clergy and give 
them a free hand to seek the best means of fostering 
higher ethical standards in the business world. We re- 
garded this as a most necessary undertaking, particularly 
in the light of the blow that had just been dealt all of 
business. 

We put our thoughts in a memo until I had an oppor- 
tunity to take up the question with the President. He 
gave the idea his enthusiastic support. 

Going ahead, we scheduled the first Council meeting 
for May 17, 1961, even before we knew if we could re- 
cruit the twenty-five members we wanted. I sent out 
invitations announcing "the first in a series of seminars 
through which we hope to explore some approaches to 
the development of ethical guidelines that might be useful 
to management." My letter continued: 

"There has been a great deal of discussion recently 
about the state of business ethics and the need for some 
very careful thought to help establish an approach to the 
problem. Here at the Department of Commerce we feel 



23 



• • THE BUSINESS CONSCIENCE • • 

an obligation to assist in this effort. It is important that 
we also state that this is not in any way a critical approach 
that we seek— but rather a constructive one." 

Only two men turned us down, although some others 
hesitated— apparently fearful that the Council might de- 
velop into a business-baiting operation. I'm sure that, 
among the members at least, any such notion was 
thoroughly scotched by the time the Council completed 
the first round of its work in January 1962. 

By January 16, the Council had virtually completed 
A Statement on Business Ethics and a Call for Action* It 
was a brief document, but it raised a series of questions 
for businessmen concerning major ethical problems. The 
questions were specifically designed to inspire many, 
many hours of constructive thought, debate and self- 
analysis. It was a good beginning. 

The Council met with some of us for breakfast that 
morning, then went to the White House to put the finish- 
ing touches on the statement before presenting it to 
President Kennedy. The group convened in what is called 
the Fish Room, a conference room just a few steps from 
the President's office. 

The President was scheduled to join us at noon, pre- 
sumably to say hello and give the Council a quick "thank 
you" for its work. At 11 o'clock, I excused myself and 
went in to see the President, to explain briefly the work 
of the Council and to hand him a short statement which 
I thought he might want to read to the group. 

* The complete text of this document is printed as an appen- 
dix to this book. 



24 



- • THE BUSINESS CONSCIENCE * • 

The President looked at the suggested statement quick- 
ly, picked up a pencil and started scratching on it: "Gov- 
ernor, I think we ought to say this, we ought to say that." 

"All right, Mr. President," I replied, "change it any 
way you want to, and we look forward to seeing you at 
the meeting." 

"Let's go now, Governor," he said. 

I was taken aback: "They're not expecting you until 
12 o'clock, Mr. President." 

"Let's go now," he said. "I'll be tied up a little later 
with Mrs. Kennedy, checking on the television show she's 
going to do about the White House." 

I said, "Yes sir, Mr. President," and escorted him to 
the meeting room, where I said as I opened the door, 
"Gentlemen, the President of the United States." 

Still grasping the paper I had given him, which by 
this time was well marked, he thanked the Council mem- 
bers for their hard work and urged still further effort. 
Here is the full formal statement, which reflected the 
views of the President in the area of promoting higher 
business ethics: 

I have reviewed with Secretary Hodges the report 
and progress you have made in the development of a 
program to stimulate and assist business leaders and 
trade association groups in attaining high ethical 
standards, and I am delighted. 

But your statement of principles can only be a be- 
ginning. In the last analysis, high ethical standards 
can be achieved only through voluntary effort. The 



25 



• • THE BUSINESS CONSCIENCE • • 

principles you have outlined will establish guideposts, 
give direction and help to whole industries and com- 
panies to initiate codes and standards. 

I am confident that American business will re- 
spond, but in addition to helping businessmen, your 
work should assist the general public to achieve a 
broader understanding of these problems— for ethics 
is a matter of concern to us all. 

The free world watches us closely for leadership 
in this field, the uncommitted nations seek examples 
of the free enterprise system in operation, and the 
Communist nations are looking for vulnerable points 
of attack. I know that you will bear all this in mind. 

It is good to know that this group of distinguished 
business leaders, educators and clergymen has under- 
taken this important task. I am looking forward to 
seeing continued reports of progress by this Council. 

Nodding to the Council members, the President said, 
"Have a seat, gentlemen," and proceeded to take one 
himself next to the chairman of the group, William C. 
Decker, board chairman of the Corning Glass Works. 

Then the real surprise began. I thought I had told the 
President all he would probably want to know about the 
Business Ethics Advisory Council. I was as pleased as any- 
one when he sat there for thirty minutes asking probing 
questions about the work accomplished, the Council's 
plans for the future, the precise meaning of various sec- 
tions of its Call for Action. 

It was an extraordinary half hour for all of us. We had 



26 



- • THE BUSINESS CONSCIENCE • • 

expected the President to be rather hurried; he had meet- 
ings of import during the day and had precious little 
time for any of them. The fact that he stayed with us, 
and dug right into the work at hand, made us realize not 
only that the President was alert to what was going on, 
but shared very deeply our interest in the most important 
subject on which the Ethics Council had been working. 

This was very different from the atmosphere I found 
at another meeting, just two months later, with the Busi- 
ness Council. 

The Business Council is a group of outstanding busi- 
ness and industry leaders. The BC, as it is known, draws 
the active participation of top management representa- 
tives from virtually all of the largest corporations. Its 
roster is studded with names familiar to almost all Ameri- 
cans. Formerly known as the Business Advisory Council, 
the group had been affiliated with the Department of 
Commerce for nearly three decades, until 1961. At that 
time it cut its direct ties with Commerce and offered its 
services, which had always been chiefly of an advisory 
nature, to the Executive Branch as a whole. One of its 
first assignments under an expanded charter was to help 
recruit personnel for the foreign aid and other agencies 
that needed experienced administrators. In these efforts, 
I understood, the BC had been helpful to the Administra- 
tion. 

Mr. Decker and I felt it would be useful to appear to- 
gether before such an organization to solicit help in imple- 
menting the ideas developed by our Business Ethics 
Advisory Council. We also wanted to urge these top 



27 



• • THE BUSINESS CONSCIENCE - • 

businessmen to consider establishing ethical codes in their 
own companies and industries and to urge their associates 
and competitors to do the same. All of this was in line 
with the President's feelings, which we shared, that the 
Call for Action prepared by the Ethics Council had 
marked only a beginning. 

I took a few minutes to trace the background of the 
Ethics Council and complimented Roger Blough, chair- 
man of the Business Council, for personally helping us 
work out certain sections of the Call for Action. 

Mr. Decker then went to the podium and explained the 
nature and purpose of the Call for Action. And to point 
up the need for increased efforts among businessmen to 
raise moral standards, he cited a recent study based on a 
questionnaire which was distributed by the Harvard Busi- 
ness Review to 5,000 executives and supervisors. The re- 
sults of the study hardly indicated there was room for 
complacency. 

Well, the effect of Mr. Decker's presentation to the 
Business Council was almost nil as far as one could tell 
Two or three people spoke out against making public 
the work of the Ethics Council and ridiculed the Harvard 
study. One industrialist argued very forcefully that it was 
bad to issue a statement like the Call for Action because, 
he contended, it makes the public feel that all business is 
unethical. 

Not a solitary soul stood up to support the proposed 
program or to endorse our view that the business com- 
munity should get actively interested in this problem. I 
couldn't help but think about the President's remark at 



28 



• • THE BUSINESS CONSCIENCE • • 

our meeting two months earlier: "I am confident that 
American business will respond." 

After one BC member had attacked the work of the 
Ethics Council, I took the floor and asked him and the 
others point-blank: 

"Why do you think that we in Commerce had this re- 
port made, and why do you think that twenty-five prom- 
inent men such as Mr. Decker and other dedicated 
citizens— from the clergy, from educational institutions 
and from the business world— spent hundreds of hours 
studying these difficult, fundamental problems?" 

Answering my own question, I said: 'We did it to 
inspire confidence in the business community and to point 
out that the small minority who are unethical are hurt- 
ing all of business." I also expressed my firm conviction 
that to gloss over the misdeeds of the small minority and 
pretend nothing was wrong would spell ultimate trouble. 

Perhaps it was the wrong day or the wrong audience. 
For whatever reason, our Call for Action got a very chilly 
reception from a blue ribbon panel of business leaders. 

I was told later by one BC member that the group's 
interest was centered on something else that day— prob- 
ably on the President's trade expansion program or the 
tax bill then pending in Congress. 

I can only judge by what I saw and heard, or failed to 
hear. 

Of course, some people claim it is bad for business to 
call attention to even the most flagrant ethical break- 
downs. They argue that you should avoid all public dis- 
cussion of price-fixing, rigged quiz shows and similar 



29 



• • THE BUSINESS CONSCIENCE • • 

evils. They believe that the less said, the sooner the public 
will forget about such situations. 

It must take a particularly narrow mentality to believe 
you can sweep under the rug a situation already exposed 
to public view. It can't be done. If you try it, you simply 
inspire suspicion that more of the same is being covered 
up. What's more, it would be the limit of folly to ignore 
things that inevitably influence public attitudes toward 
business in general. When the sins of a fellow business- 
man threaten to weaken public confidence in the ethics 
of all businessmen, it behooves all of us to face the prob- 
lem head-on. As I told the Business Council, we must 
take positive action to see to it that the misdeeds of a 
minority do not undermine the public's faith in American 
business, or blacken the image of our private enterprise 
system throughout the world. 

Every instance of business wrongdoing that reaches our 
attention should jog us into increasing our own efforts to 
make certain that our personal business affairs are con- 
ducted with a maximum of probity and honor. And it 
makes no sense to take such action in secret. It should be 
done out in the open— so the world will know the Ameri- 
can businessman is determined to do the right thing. 

Because business sometimes has been made a whipping 
boy when serious trouble has afflicted the economy, a 
great many business leaders are terribly thin-skinned 
about any publicity that might be harmful to their calling. 
If the newspapers headline an electrical industry price- 
fixing case, some are ready to detect a plot against busi- 
ness. That is absurd. Moral lapses are not confined to the 



30 



• • THE BUSINESS CONSCIENCE • • 

business community— and neither are the headlines. The 
press gives equal prominence to misdeeds of labor, cheat- 
ing by college students, bribe-taking by young athletes, 
venality in public office, and thievery by city policemen. 

A lot of honest policemen have been embarrassed and 
hurt by the exposure of recent scandals in the police de- 
partments of some major cities. Yet no one is proclaiming 
a plot against law enforcement or agitating for a cover- 
up. Taxpayers, in fact, don't want to see the problem 
swept under the handiest rug. They want the situation 
dealt with— and all policemen will be better off, along 
with the rest of us, once the evil minority has been dealt 
with properly. 

I want to emphasize that to deal properly with im- 
morality, we must deal firmly and fairly. I thoroughly 
believe in the deterrent power of stern punishment. To 
simply administer a slap on the wrist is almost worse than 
doing nothing; it makes a mockery of justice. 

In this connection, I've become concerned about the 
soft attitude many Americans take toward crime and 
punishment. It has become almost disgraceful to impose 
the maximum penalty for any kind of crime, even mur- 
der. 

Errant businessmen, I might add, deserve no exemption 
from stern punishment. If a businessman bilks a competi- 
tor of a million dollars, however sophisticated the method 
used, he should certainly be punished at least as severely 
as the common criminal who uses his hands to take 
twenty dollars from the till of a neighborhood drug store. 
Yet that criminal often goes to prison while the business- 



31 



• • THE BUSINESS CONSCIENCE • • 

man pays a modest fine or is handed a cease-and-desist 
order. 

Unquestionably, one reason the electrical industry 
scandal had such an impact was the fact that the defend- 
ants were treated as criminals by the Court; some were 
handcuffed and sent to jail. Even so, the stiffest sentence 
was thirty days in jail— hardly an extreme punishment for 
men whose conspiracy robbed customers of many mil- 
lions of dollars. 

Of course, there are a variety of sound legal distinc- 
tions that tend to put the lawbreaking businessman in a 
category separate from the common criminal. Many laws 
applying to business call for civil rather than criminal 
proceedings. This is so because their chief aim is the 
quick correction of business abuses, in order to protect 
the public; punishment is secondary. 

No one can argue against a law that empowers enforce- 
ment agencies like the Federal Trade Commission and 
the Securities and Exchange Commission to seek a prompt 
halt to illegal business practices. At the same time, I 
think we would all benefit, too, if more adequate provi- 
sion were made for imposing meaningful punishment on 
the guilty parties. There must be an effective deterrent, or 
the small minority of crooked operators who call them- 
selves businessmen will think the law is a joke— and act 
accordingly. 

Just as I believe in strong deterrents to illegal conduct, 
I am firmly convinced of the prophylactic benefits of 
exposing wrongdoing— much as it may temporarily em- 
barrass and even injure the segment of society directly 



32 



• • THE BUSINESS CONSCIENCE • • 

involved. The end result, almost without exception, is 
progress. I think the stock market is a good example. 

When Ferdinand Pecora and the Senate Banking Com- 
mittee turned the spotlight of publicity on the shortcom- 
ings of the securities industry after the 1929 market crash, 
the industry hollered that it was being made a scapegoat 
for the Depression. And the hollering became even more 
strident when Franklin D. Roosevelt and the Congress 
imposed federal regulation on the industry, in order to 
curb glaring abuses. 

I doubt that you could find anyone today who would 
claim the result was anything but helpful. Without those 
New Deal reforms, seventeen million Americans would 
have lacked the confidence to invest their savings in stocks 
during the record bull market that followed World War 
II. And if these millions had not bought stocks, our pri- 
vate enterprise system would have been strapped for the 
equity capital needed to finance economic expansion. 

In the early 1960's, the stock market was again made 
the subject of close federal scrutiny. The Securities and 
Exchange Commission turned up substantial evidence 
that some market operators had reverted to corner-cut- 
ting and unethical practices, tempted by the vast sums 
changing hands in the bull market. Few in Wall Street 
were very happy about the inquiry but, this time, govern- 
ment investigators at least were greeted with offers of 
cooperation rather than cries of anguish. The industry 
knew from experience that the way to solve a problem 
is to meet it. 

I think it's worth adding that the market problems 



33 



• • THE BUSINESS CONSCIENCE • • 

which attracted wide attention in the early 1960's did 
not spring up overnight. They had been abuilding for 
years, while people who might have done something 
about it were lulled by complacency; these people 
thought the New Deal reforms had been a cure-all and 
they didn't appreciate the absolute necessity of continu- 
ing vigilance. 

It's chilling to think about the number of times that 
much-needed reforms have been thrown out the window 
because of unwarranted self-satisfaction. This has been a 
recurrent theme in the history of many municipal govern- 
ments. 

Look magazine sponsors a very interesting and helpful 
annual competition in which the cities and towns of the 
country vie for designation as one of the eleven All- 
America cities of the year. I have been intimately 
acquainted with several of these communities, and with 
the things they did to earn the honor. 

In one small city in the Northwest, a dedicated young 
mayor and city council achieved extraordinary results, 
giving their community a new image and enlisting volun- 
teer help in laying out sewer lines, planning streets, im- 
proving schools and doing all the tough and tedious 
things that must be done if a city is to have integrity and 
growth. Look honored these achievements. But just 
twenty-four hours before the award was announced, the 
voters of the All- America City turned out for a munici- 
pal election and threw out their good councilmen, threw 
away their achievements, and took a step backward. The 
people who had done so much for the community rested 



34 



• * THE BUSINESS CONSCIENCE • * 

on their laurels and failed to vote. The opposition, facing 
an uphill fight, did not share their complacency. 

Here was another example of the failure of individual 
responsibility— the surrender to the easy philosophy of 
"let George do it." Here was a reminder that every man's 
effort is needed, at the polls, in policing business ethics, 
and in all other good causes. 

Another illustrative incident happened in my own state 
of North Carolina. A municipal election that brought 
out more than eight thousand voters was decided by a 
single vote. The slate which had the strongest support 
from businessmen and professional people lost. The elec- 
tion was held in the summer when these people had a 
chance to go to their beach cottages or play golf or take 
a trip. Many prominent citizens failed to carry out their 
simple but important responsibility of voting. They 
asked, "What difference does my one vote make?" They 
found out. 



35 



THE GRAY 
AREA 



x^Tveople who have had no experience in business 
J^ ly must wonder sometimes why it isn't a simple 
^ — ' matter to conduct all business dealings in ac- 
cordance with the highest ethical standards. Surely, you 
don't have to be a saint to decide whether a given course 
of action is right or wrong. The difference between the 
proper and the improper should be clear enough. 

In actuality, the proposition isn't that simple. Almost 
daily, the businessman faces decisions which involve 
ethical questions that are not easily resolved. In many in- 
stances, the business executive must walk a moral tight- 
rope, trying to balance fairly the sometimes-conflicting 
interests of employees and stockholders, customers and 
suppliers. Or he may find himself in an area where ethical 
standards are vague and the law ambiguous. This is an 



36 






• • THE BUSINESS CONSCIENCE • • 

aspect of business life that is rarely seen by those on the 
outside. 

The public thinks in terms of flagrant abuses of ethical 
conduct— the headline-making incidents in which ques- 
tions of right and wrong are indeed clearcut, or should 
be. These cases are worrisome because they present the 
most direct threat to confidence in the integrity of our 
business community. At the same time, they are unusual 
cases that have little relation to the ethical problems that 
confront the great majority of businessmen in their day 
to day activities. 

I think this fact is clear enough from the shock and 
indignation registered by the public when flagrantly im- 
moral conduct among businessmen is exposed. The mass 
reaction is convincing evidence that, when such cases 
come to light, they stand out boldly. Were they an every- 
day occurrence, they would shock no one. 

It is worth noting, too, that many of the cases which 
inspire public indignation today would have gone un- 
noticed a few decades ago. A good example of what I 
mean can be found in the attention given to the conflict 
of interests case that involved the former president of 
the Chrysler Corporation. Stockholders were as angry 
about this situation as the general public, and the man lost 
his job forthwith. Yet forty or fifty years ago, conflicting 
interests were a way of life in business. A great number 
of the most important people in commerce and industry 
were involved in what would today be roundly con- 
demned as conflicting interests. But the public wasn't in- 
dignant then. It was more concerned about the harsh 



37 



• • THE BUSINESS CONSCIENCE • • 

treatment of workers, the existence of unconscionable 
monopolies, the merchandising of products harmful to 
the public health and other evils which have since greatly 
diminished. 

The plain fact is that the public expects more of today's 
businessmen— and it receives more from them. 

Of much greater basic concern than unusual instances 
of blatant wrongdoing are the ethical questions of more 
modest scope which face the great bulk of American 
businessmen who want to do the proper thing, but don't 
always succeed simply because the decisions they face 
are so complex in our competitive society. 

If questions of business ethics could always be viewed 
in terms of black and white, there would be no need to 
write books, hold seminars or conduct university classes 
about moral issues. Faced with a black and white situa- 
tion, anyone could judge the proper course by instinct. 

Unfortunately, most ethical questions in the business 
arena fall into a gray area where judgments are difficult 
and where there is a strong temptation to resolve every 
doubt in favor of the most profitable course, or the course 
that will least "rock the boat." I'd like to give a couple of 
illustrations, because they will put the subject in concrete 
terms. 

Just before the outbreak of World War II, I was gen- 
eral manager, in charge of both production and sales, of 
the twenty-nine Marshall Field & Company textile mills 
in the United States and abroad. The main business of 
Marshall Field was, of course, retailing. The firm had, 



38 



• • THE BUSINESS CONSCIENCE • • 

and has, a tremendously successful department store in 
Chicago. 

During the war many items were rationed and we had 
to allocate limited quantities of the product of our rug 
mill to several hundred customers. These customers had 
been dealing with us for many years. 

The president of Marshall Field & Company, my em- 
ployer, called me into his office in Chicago one day and 
announced that the company's retail store there could 
take the entire output of the rug mill. He told me that the 
company could make a great deal of money in this fash- 
ion, because the rugs would be sold at retail rather than 
wholesale prices. He asked what I thought about the 
proposition. 

It would have been easy to go along with the idea. No 
one could accuse me of rocking the boat. And I wouldn't 
be violating any law. 

"Mr. President," I said, actually calling him by his 
first name, "I don't think it would be right to let the 
store have all the rugs. Other customers are counting on 
us and they've been doing business with us for a long 
time. If you should feel strongly that the rug department 
should have all our output, then I suggest that the store 
execute a contract specifying that it will take the entire 
production, which is several million dollars a year, not 
only while the war is on but for ten years after the war. 
I think that would be something we could discuss." 

My employer smiled and the subject was closed. 

The second illustration is more personal, involving my 



39 



• • THE BUSINESS CONSCIENCE * • 

family. But it is not unique in any way. It represents a 
problem that confronts a great many businessmen. 

After graduation from the University of North Caro- 
lina, I was offered a job as Y.M.C.A. secretary at a south- 
ern college. The job paid $3,000 a year— mighty good 
money in 1919. But I turned down the opportunity in 
order to return to my home town of Leaksville, North 
Carolina, and go to work in the local mill for $1,000 a 
year. My decision was based partly on selfish considera- 
tions, because I thought a business career would be more 
profitable in the long run, and partly on a personal basis, 
because I wanted to see if I could make good in the com- 
munity where I had grown up as a poor boy. 

I began to get into management after several years on 
the job and first was appointed manager of a single mill, 
then of several mills, and finally of all the Field opera- 
tions in the textile business. As general manager, some 
four thousand employees were under my general direc- 
tion. 

Seven of my eight brothers and sisters lived with their 
families in the communities near the Leaksville mills, all 
within a four-mile radius. The eighth lived a hundred 
miles away. 

About the only place where any of my family or their 
children could find work was in one of the mills operat- 
ing under my direction. I was connected with these mills 
in one capacity or another for more than thirty years. In 
that entire time, I made it a point never to have a single 
member of my family into my office to discuss a job and 
never to intercede for any of them. I never placed one on 



40 



• • THE BUSINESS CONSCIENCE • * 

the payroll nor did I interfere when one was hired, fired, 
transferred or refused employment by the personnel 
office. 

Many people, including members of my family, criti- 
cized me rather severely for being "tough." I believe my 
policy was the correct one, however, and had a good in- 
fluence on my relations with the several thousand em- 
ployees of the mills. 

In both instances I have cited, I was operating in the 
gray area. In either case, I could have taken the position 
that would have been most profitable for myself and for 
members of my family— and I could have argued that my 
actions were legal and proper. But in my heart, I wouldn't 
have felt right. 

It is a matter of record that the average business execu- 
tive does bring his conscience to the office. But his con- 
science is often troubled, by doubts about his own actions 
or those of his associates. 

A very illuminating portrait of the present day execu- 
tive was drawn in 1961 by the Reverend Raymond C. 
Baumhart, a Jesuit priest who conducted a detailed study 
for the Harvard Business Review, using questionnaires 
and depth interviews. It was this study that drew ridicule 
at the meeting of the Business Council which I attended 
with Mr. Decker of Corning Glass. 

Some 1,700 graduates of the Harvard Business School 
responded to Father Baumhart's questionnaire. Forty-five 
per cent represented top management and twenty-seven 
per cent were classified as upper middle management. 



41 



• - THE BUSINESS CONSCIENCE - • 

These were the highlights of the study, as reported by 
Father Baumhart: 

—Executives are alert to the social responsibilities 
of business as these are expressed in general terms. 
They see the corporation as a human society, a 
microcosm of the larger society in which it functions. 

—As for specific business practices, executives 
often disagree about what is the ethical thing to do. 

—Though our respondents profess a lofty level of 
ethical aspirations for themselves, they reveal a lower 
opinion of the practices of the "average" business- 
man. 

—Executives say that the man most likely to act 
ethically is the one with a well-defined personal code. 
If he also has a boss who is highly ethical, his be- 
havior will be consistently upright. But watch out, 
say executives, for there are many pressures for un- 
ethical conduct. 

—Executives admit and point out the presence of 
numerous generally accepted practices in their in- 
dustry which they consider unethical. Our respond- 
ents cite many daily problems in which the 
"economic" solution conflicts with the "ethical" 
solution. 

—If unethical practices are to be reduced, execu- 
tives say that top management must lead the way. 
The men at the top must be individuals of principle,, 
who unmistakably reveal their attitude, not verbally,, 
but also by forceful actions. 



42 



• . THE BUSINESS CONSCIENCE • - 

—As a help in correcting unethical practices, most 
executives would welcome a written code of ethics 
for their industry. But this code must have "teeth," 
be capable of enforcement, and embody specific 
guides for conduct if it is to do the job. 

—Most executives believe that organized religion 
and clergymen have been lax in providing guidance 
for the ethical problems of business. At the same 
time, the welcome which businessmen give to cleri- 
cal advice is directly proportional to the amount of 
knowledge that the individual clergyman has about 
business. 

Participants in the Harvard study were asked to take 
a position on a philosophical statement mirroring an at- 
titude that was commonplace at the turn of the century: 

". . . the businessman exists for only one purpose, 
to create and deliver value satisfactions at a profit 
to himself . . . The cultural, spiritual, social and 
moral consequences of his actions are none of his 
occupational concern." 

This philosophy was rejected by ninety-four per cent 
of those who responded. Father Baumhart termed the 
reaction "convincing." 

An even more solid majority— ninety-nine out of a 
hundred— subscribed to the belief that "sound ethics is 
good business in the long run." Yet a troublesome twenty 
out of a hundred disagreed with the following state- 



43 



• • THE BUSINESS CONSCIENCE • • 

ment: "For corporation executives to act in the interest 
of shareholders alone, and not also in the interest of em- 
ployees and consumers, is unethical." And fifteen out of 
a hundred thought that "whatever is good business is 
good ethics." As Father Baumhart noted with concern, 
"This is the same as saying that if a thing makes money, 
it is good." To me, that's a throwback to the days of 
Cotton Mather, who thought the rich man must be ethi- 
cal; otherwise God wouldn't have favored him with 
earthly wealth. 

The Harvard study turned up considerably more cyni- 
cism about business ethics than seems healthy. For ex- 
ample, nearly half the panel accepted this statement: 
"The American business executive tends to ignore the 
great ethical laws as they apply immediately to his work. 
He is preoccupied chiefly with gain." 

This same cynical attitude was revealed in yet another 
fashion. Father Baumhart asked half the panel what they 
would do in specific situations. The others were asked 
what they believe the "average" executive would do in 
the same situation. Here's one of these situations, and the 
response: 

Imagine that you are a member of the board of 
directors of a large corporation. At a board meeting 
you learn of an impending merger with a smaller 
company which has had an unprofitable year, and 
whose stock is presently selling at a price so low 
that you are certain it will rise when news of the 
merger becomes public knowledge. 



44 



THE BUSINESS CONSCIENCE 





What I 


What Others 




Would Do 


Would Do 


Buy some for self? 


42% 


61% 


Tell a good friend? 


14% 


46% 


Tell broker? 


2% 


11% 


Do nothing? 


56% 


29% 



Contrast the response to the hypothetical situation 
with what the law, as interpreted in a recent decision of 
the Securities and Exchange Commission, has to say: if 
a corporation "insider" has secret information which 
would affect the market value of a stock, he must avoid 
all transactions in the stock or disclose the information 
to those with whom he deals. In other words, if he wants 
to buy the stock cheap, he must disclose his inside 
knowledge to the seller— who might then have second 
thoughts about selling. Yet nearly half the panel reported 
they would buy the stock— presumably without making 
the required disclosure. And probably many of them 
would never realize that, in this instance, they would be 
violating the SEC ruling. 

Here is another problem decision presented to Father 
Baumhart's panel: 

Imagine that you are the president of a company 
in a highly competitive industry. You learn that a 
competitor has made an important scientific discov- 
ery which will give him an advantage that will sub- 
stantially reduce, but not eliminate, the profits of 
your company for about a year. If there were some 



45 



• • THE BUSINESS CONSCIENCE • • 

hope of hiring one of the competitor's employees 
who knew the details of the discovery, would you 
try to hire him? 

What I What Others 
Would Bo Would Do 
Probably hire him 48% 70% 

Probably not hire him 52% 30% 

A third situation involved expense account padding— 
a not uncommon business practice. The panel was asked 
for its attitude about a $10,000-a-year executive who 
pads his expenses by about $500 a year. The response: 

What I What Others 

Think Think 
Acceptable if others 

do the same 6% 27% 

Acceptable if the boss 

knows and says nothing 11% 28% 

Unacceptable 86% 60% 

Obviously, there is wide, but varying disagreement 
about the acceptable course in all three situations— even 
when the law is involved. And businessmen clearly be- 
lieve that their colleagues maintain less exacting moral 
standards than their own. These findings, I think, are a 
measure of the problem which faces the business commu- 
nity as it assays further progress in the area of ethics. 

It seems clear that the greatest need is for more discus- 
sion of these gray areas where decisions are not clearcut; 



46 



• • THE BUSINESS CONSCIENCE • - 

where the law is no guide because it does not apply; or 
where it is easy to rationalize improper conduct which 
is more profitable in the short run. 

These are the areas that cause the most soul-searching 
among businessmen, and where ethical lapses are most 
frequent. While the flagrant cases make headlines, this is 
the great hidden part of the iceberg— the part that is more 
important than any other in setting the moral tone of 
American business. Although the public becomes most 
alarmed about the sensational cases, which offer all of us 
the most pressing motive for self -improvement, it is the 
great mass of day-to-day problems which must be han- 
dled ethically if we are to achieve the standards we seek. 

If we can nail down generally acceptable standards for 
the principal gray-area problems, we can lift the entire 
moral plane of business operations. 

While some may argue that this is a Utopian dream, I 
consider the task far from hopeless. Businessmen are 
ready to discuss morality on a practical level— even 
though some may be tempted to do so behind closed 
doors lest the public become alarmed. 

Before you conclude that it's futile to tackle business 
problems in moral terms, take another look at your morn- 
ing newspaper. Make a checklist of the major issues of 
the day, nationally and internationally. On what terms 
are most of these questions debated in the halls of Con- 
gress, in the United Nations, in diplomatic conferences? 
You will find that moral arguments are used more often 
than any others— a clear demonstration that the great mass 



47 



• • THE BUSINESS CONSCIENCE * • 

of humanity is swayed more by moral considerations than 
power politics. 

If the businessman realizes that moral questions are 
vitally important to the mass of humanity— his customers, 
after all— he will act quicker than you might expect to 
come to grips with the moral problems involved in his 
operations. 

I believe a great moral debate already is well underway 
in American business. It has been picking up steam for 
several decades and has been accelerated as a result of the 
handful of recent major scandals. Here is just one illus- 
tration of the kind of thing that has been happening: 

Early in 1962, a ride on the Monday morning com- 
muter train to Grand Central Station became a unique 
experience for seventy-two businessmen from the Man- 
hattan suburbs of Chappaqua, Pleasantville and North 
White Plains. Although daily train trips through the 
Westchester countryside were routine for these men, the 
Monday trips fell far outside the regular pattern. There 
was no time then for the usual preoccupation with news- 
papers, playing cards, office reports, and idle conversa- 
tion. Even the train itself was different on Monday: a 
thirteenth car was added so the businessmen could con- 
gregate in complete privacy— to discuss business ethics 
with a Chappaqua clergyman. 

As an experiment in moral uplift, this pioneering sem- 
inar on rails was a notable success. The participants 
avoided sentimentality, sermonizing and plugs for de- 
nominational dogma. The talk centered squarely on the 



48 






• . THE BUSINESS CONSCIENCE • • 

gray-area problems that are an everyday feature of busi- 
ness life. 

How, for instance, do you deal with a boss who urges 
you to pad your expense account so you can get a tax- 
free pay increase? And do you retaliate against a fellow 
worker who is blocking your personal advancement? 
And when does a business gift represent an innocent 
goodwill gesture rather than a blood relative of com- 
mercial bribery? These were the questions discussed. 

As the businessmen left the train, they dropped their 
personal comments on the day's topic in a yellow box, 
along with notes on problems of particular concern in 
their own business activities. These notes were fodder 
for future discussions. 

The seminars continued every Monday morning for 
eight weeks. They were directed by the Rev. Dr. Edwin 
D. McLane of Chappaqua's First Congregational Church, 
who originated the idea after having difficulty schedul- 
ing weekend or evening seminars at his church. Since 
businessmen seemed to have too many conflicting en- 
gagements during their free time at home, Dr. McLane 
hit on the idea of getting them together during the long 
train ride to the city. The trip represented the biggest 
block of free time common to all the men. 

I feel quite sure that fifty years ago you couldn't have 
gotten a dozen businessmen to buckle down to moral 
questions in such an organized fashion. The fact that 
seventy-two responded is a measure of the progress we 
have made. And it also reflects the current responsiveness 
of business executives to suggestions that more thought 



49 



• - THE BUSINESS CONSCIENCE • • 

be given to moral considerations which should underlie 
their actions. I think it is pertinent to note that the lay- 
leader of Dr. McLane's seminar was an official of one of 
the large corporations which admitted guilt in the elec- 
trical industry price-fixing case. 

The Chappaqua experiment, while unique in its out- 
ward trappings, was not so unusual in its intent. In 
recent years, business leaders at all levels have been dis- 
cussing ethical questions more frankly in public speeches. 
Some have even dealt with the subject in their annual re- 
ports to stockholders. And magazines aimed at a business 
audience have been giving increased attention to moral 
issues. 

It would be tragic if the American business community 
bypassed the current opportunity to make giant strides 
in elevating its ethical standards. Each of us would be the 
loser, and collectively, that means that our country 
would lose. 

We obviously are engaged in a supremely important 
struggle to demonstrate the superiority of our system 
over one alien to all our concepts. And the strength of 
our business system— morally as well as materially— will 
bear heavily on the eventual outcome. 

I believe that each of us should do his utmost to con- 
tribute to the common effort, which actually embraces 
all segments of our society. We cannot afford to "let 
George do it." 



50 



THE LESSON 
OF HISTORY 



/^Nohe days of the business buccaneer, when many 
L / of the most successful industrialists were en- 
^— y gaged in something close to organized piracy, 
seem a very distant part of our national history. Still, I 
remember very clearly our local "robber baron" in the 
small town where I grew up. And I particularly recall 
an instance that dramatized in a striking way his strange 
conception of the businessman's responsibility toward 
society. 

This man was a living caricature of the overfat capi- 
talist—the kind that survives in Communist propaganda 
cartoons. He chewed tobacco, walked with a strut and 
covered his ample belly with a vivid red vest that was 
draped with a heavy gold watch chain. Everyone in 
town thought he was real smart, and it surely was ob- 



51 



• • THE BUSINESS CONSCIENCE • - 

vious that he had done very well for himself. He con- 
trolled not only the local mills but the village itself— the 
company store, the company schools, the company 
houses and, to a great extent, even the poor wooden 
churches of the community. On several occasions, I've 
heard, he persuaded some of the preachers, who de- 
pended on him for financial support, to help combat 
union sentiment and keep the minds of the workers on 
religion rather than economics. 

And I feel sure that he regarded his rather despotic 
paternalism as evidence of an active social conscience; 
as proof of his concern for the welfare of his fiefdom. 

My sharpest memory of the man dates back to a morn- 
ing when he issued orders that all the students in our ele- 
mentary school, which had six grades, be marched to his 
home. There were some two hundred to three hundred 
of us and we trudged happily, two-by-two, to his big 
house on the hill, glorying in our brief outing. Waiting 
to greet us were the "big boss" and two of his Negro 
servants. Each servant was holding a large washpan full 
of quarters fresh from the mint. We lined up in a large 
semi-circle on the spacious lawn and our benefactor 
passed in front of us, stopping before each eager face to 
dole out a coin. To each of us, he repeated the same ad- 
monition: "Tell your daddy I gave you a quarter." 

To this man, the gift of a quarter to several hundred 
schoolchildren was an act of tremendous generosity and 
kindness. And perhaps it salved a conscience troubled by 
other deeds less noble and kind. 

According to one account, which I heard later, our 



52 



• • THE BUSINESS CONSCIENCE • • 

"big boss" took the savings of investors and used the 
money to speculate in the cotton market. If he lost, it 
was charged to the mills; if he won, the proceeds went 
into his own account. I never knew the truth of these 
accusations but I did learn, several years later, that he 
had a very bad reputation for scheming and sharp prac- 
tice. 

I'm glad I can report that the actions and attitudes of 
this man differed sharply from those of the present-day 
owners of the principal Leaksville mills in the area. These 
particular mills changed hands after I left the community 
in 1950, being taken over by a group of supposedly tough 
financiers. But the man who put up most of the money 
is a truly generous and socially responsible individual 
quite different from our local baron of sixty years ago. 
The new boss is pouring millions into the property, mod- 
ernizing his equipment and getting ready to meet any 
competition. I have commended him several times for his 
far-sighted policies, which I felt would prove very prof- 
itable in the long run. On such occasions, he has replied: 

"I suppose those things will come, but I am thinking 
in terms of the people; I am thinking in terms of the four 
or five thousand jobs that must be preserved; I am think- 
ing in terms of those people who have given years of 
their lives to making this business profitable for the own- 
ers; and I am going to keep on pouring in the money and 
not worry too much about what I personally get out 
of it." 

Sixty years is a very short span in the history of our 
civilization but the past sixty have produced many dra- 



53 



• • THE BUSINESS CONSCIENCE • • 

matic changes. And the contrasting attitudes of the two 
mill owners of Leaksville are one measure of the progress 
that has been made in developing the social and moral 
attitudes of our business community. 

The progress has been so great, in fact, that it would 
be easy to conclude that we no longer need to fret too 
much about further progress. Be mindful, however, that 
even as one mill owner is trying to preserve a vital com- 
munity asset at the expense of short-run profits, the lead- 
ers of businesses in other towns may be yielding to 
the expediency of short-term profits at the expense of the 
welfare of their community and nation, and even the 
long-range welfare of their own firms. 

There is an important lesson to be learned from the 
business history of the past sixty years and I would state 
it this way: Conditions change year by year, creating 
new problems as old ones become less pressing. Because 
time does not stand still, the job of polishing up our busi- 
ness standards will never end. 

The emergence of new problems— and the need to give 
them serious thought— certainly was reflected in the at- 
tempt by U.S. Steel to add six dollars to the selling price 
of a ton of steel in April 1962. This action prompted a 
national debate on the social responsibilities of business; 
the moral responsibilities, if you will. A few decades ago, 
there would have been no debate. The price of steel 
would have been regarded as a purely economic proposi- 
tion falling solely within the province of the industry. 
The nation's stake in so important a pricing decision 
would not have entered the picture. Yet when Inland 



54 



• • THE BUSINESS CONSCIENCE • • 

Steel announced it would not follow the example of the 
industry's No. 1 producer, it explained that a six dollar 
increase would not be in the national interest. Most 
Americans agreed, a great many businessmen included. 

Because history does offer a lesson that is most per- 
tinent to the subject of business standards, I'd like to 
trace, in very broad outline, some of the developments 
that have occurred during my own lifetime. They pro- 
vide a basis both for optimism and concern. Moreover, 
the fact that so much has happened in so short a time 
points up the speed at which the world moves— and the 
dangers which businessmen and the free enterprise system 
risk if they don't move with it. 

I'll begin with Andrew Carnegie, not because his busi- 
ness practices differed markedly from those that would 
be acceptable today— which is true enough— but because 
he was considered by many to be one of the more en- 
lightened industrialists of his age. 

Mr. Carnegie knew grinding poverty from personal 
experience. As an immigrant lad of twelve, he went to 
work as a "bobbin boy" in a Pennsylvania cotton mill. 
He reported for work before dawn six days a week and 
was released after sunset. He was paid $1.20 a week for 
labor so arduous that, as he later recalled, "slavery might 
not be much too strong a term to describe it." 

Young Carnegie's next job was little better. He was 
put to work firing a boiler and running a small steam en- 
gine that powered all the machinery in a local mill. It was 
a big responsibility for a boy of grammar school age and 



55 



• • THE BUSINESS CONSCIENCE • • 

the strain was great— too great, in fact. Many times, Car- 
negie awoke at night and sat upright in his bed, mentally 
adjusting the steam gauges lest the factory be blown to 
bits. 

Having fought his way up from these stark beginnings, 
it isn't surprising that Andrew Carnegie was one of the 
"enlightened" capitalists of his era. Yet any reader of 
The Gospel of Wealth, which he published in 1901, will 
discern very quickly the limits of his enlightenment. 

For one thing, the book includes an essay on "The Ad- 
vantages of Poverty"— a discussion in which Mr. Carne- 
gie concluded that the abolition of "honest, industrious, 
self-denying poverty" would threaten the progress of 
civilization. I doubt that any multi-millionaire today 
would have the temerity to bare this kind of thinking in 
public. 

Mr. Carnegie also devoted much space to labor rela- 
tions. And the views he expressed undeniably were quite 
advanced for his day— to say nothing of the fact that 
they contrasted most sharply with the celebrated battle 
waged at his Homestead steel mill near Pittsburgh during 
labor's early struggle for management recognition. 
Wrote Mr. Carnegie: 

The right of the working-men to combine and to 
form trades-unions is no less sacred than the right of 
the manufacturer to enter into associations and con- 
ferences with his fellows, and it must sooner or later 
be conceded. Indeed, it gives one but a poor opinion 
of the American workman if he permits himself to 



56 



• • THE BUSINESS CONSCIENCE • • 

be deprived of a right which his fellow in England 
long since conquered for himself. 

Few would quarrel with this statement today, although 
a great many businessmen found fault with it in 1901. 
However, another passage, in which Mr. Carnegie dis- 
cussed the mutual benefits that flow from periodic meet- 
ings of management and labor representatives, speaks 
volumes about the kind of labor negotiations envisioned 
by the great steel magnate: 

It is astonishing how a small sacrifice upon the part 
of the employer will sometimes greatly benefit the 
men. I remember that at one of our meetings with a 
committee, it was incidentally remarked by one 
speaker that the necessity for obtaining credit at the 
stores in the neighborhood was a grave tax upon the 
men. An ordinary workman, he said, could not af- 
ford to maintain himself and family for a month, and 
as he only received his pay monthly, he was com- 
pelled to obtain credit and to pay exorbitantly for 
everything, whereas, if he had the cash, he could 
buy at twenty-five per cent less. "Well," I said, 
"why cannot we overcome that by paying every 
two weeks?" The reply was: "We did not like to 
ask it, because we have always understood that it 
would cause much trouble; but if you do that it 
will be worth an advance of five per cent in our 
wages." We have paid semi-monthly ever since. 



51 



• • THE BUSINESS CONSCIENCE • • 

Needless to say, there are many labor relations experts 
working for industry today who wish their problems 
could be solved so easily— and cheaply. Still, Mr. Carne- 
gie's workers "did not like to ask" for two pay days a 
month for fear of inconveniencing their employer. While 
this sounds foreign to our ears, the docile attitude of 
labor was a commonplace in many industries at the time, 
as I can testify from my own experience. 

When I got my first job in 1910— at the same age that 
Mr. Carnegie began his business career, coincidentally— I 
received five cents an hour. And none of us ever thought 
of questioning the rate of pay. We received three dollars 
a week for sixty hours of work. And we worked without 
interruption, never hearing of the luxury of a coffee 
break— to say nothing of a vacation, paid or otherwise. 

Some four or five years later, I was making seventy- 
five cents a day, or seven and a half cents an hour. In the 
environment of the times, I was doing real well. So well, 
in fact, that my foreman, or overseer, was astounded 
when I told him I wanted to go to college. 

"Luther, don't be foolish," he cautioned. "You are do- 
ing good here, and I expect in another year you'll be 
making a dollar a day or more if you keep working." 

Without a doubt, the treatment of labor constituted 
one of the great ethical problems facing businessmen 
near the turn of the century. And this remains a great 
problem— but in a much different context. In Mr. Car- 
negie's day, it was often a question of whether workers 
had a right to organize and bargain collectively with 
their employer. And even when they were granted the 



58 



• • THE BUSINESS CONSCIENCE • • 

right to bargain, negotiations frequently were confined 
to such problems as the timing of pay day. Employers 
showed far less willingness to discuss the level of wages. 

Today, organized labor has won so many benefits and 
so much power that it shares with management the moral 
problems that spring from the temptation to misuse great 
power. And unions, like the companies with which they 
bargain, have had to establish their own formal codes of 
ethics. 

Another major moral problem that faced the great cap- 
italists of 1900 involved the proper use of their vast for- 
tunes. Many of these titans of industry had started life in 
poverty and they felt somewhat uncomfortable— and per- 
haps a little guilty— about the fortunes they had created. 

Andrew Carnegie was more troubled than many of his 
colleagues and, in the title essay of his book, he expressed 
a philosophy of philanthropy that perhaps was more in- 
fluential than anything else ever written on the subject. 
Mr. Carnegie declared that it was the duty of the man of 
wealth "to consider all surplus revenues which come to 
him simply as trust funds, which he is called upon to ad- 
minister ... in the manner which, in his judgment, is 
best calculated to produce the most beneficial results for 
the community." He devoted a great deal of thought to 
the art of giving and reached these conclusions: 

. . . the best means of benefiting the community 
is to place within its reach the ladders upon which 
the aspiring can rise— free libraries, parks, and the 



59 



• • THE BUSINESS CONSCIENCE • • 

means of recreation, by which men are helped in 
body and mind; works of art, certain to give pleas- 
ure and improve the public taste; and public insti- 
tutions of various kinds, which will improve the 
general condition of the people; in this manner re- 
turning their surplus wealth to the mass of their fel- 
lows in the forms best calculated to do them lasting 
good. 

Mr. Carnegie's thoughts had tremendous impact. All 
of us have benefited, I am sure, in some fashion from his 
gifts, and those which he inspired. Without question, he 
established philanthropy as a prime moral obligation of 
the very rich, causing many men to give new thought to 
the disposition of their fortunes. 

Such a man in my state was Mr. James B. Duke, crea- 
tor of a vast tobacco trust that destroyed scores of in- 
dependent tobacco factories in North Carolina and 
elsewhere, until the trust itself was smashed by a federal 
court. 

Mr. Duke seldom is remembered today for his rough 
business tactics. Rather he is known for the creation of 
Duke University— through the re-creation of old Trinity 
College— and for the Duke Foundation that even now 
helps local hospitals and Methodist preachers in the re- 
gion served by the efficient Duke Power Company. 

Perhaps the alteration of our memories is exactly what 
Mr. Duke intended— and Mr. Carnegie, too, for that mat- 
ter. 



60 



• • THE BUSINESS CONSCIENCE • • 

True, these men sometimes gave heed in other ways 
to the moral consequences of their economic power, 
some by recognizing labor unions and some by raising 
the banner of paternalism. However, they were blind to 
many of the moral issues that should have struck them 
squarely in the face. Mr. Carnegie, for instance, appar- 
ently gave little thought to the businessman's obligations 
to his competitors and his customers, which now are 
well-established areas of business concern. 

Social evils springing from the creation of great trusts 
also were beyond Mr. Carnegie's field of vision. In the 
same volume in which he argued the merits of philan- 
thropy, and defended labor's right to organize, he decried 
all governmental efforts to control the trusts. He argued 
that business and the forces of competition could handle 
this problem without interference. And he even saw a 
positive good in the trend toward monopoly power: 

We conclude that this overpowering, irresistible 
tendency toward aggregation of capital and increase 
of size in every branch of product cannot be ar- 
rested or even greatly impeded, and that, instead of 
attempting to restrict either, we should hail every 
increase as something gained, not for the few rich, 
but for the millions of poor, seeing that the law is 
salutory, working for good and not for evil. Every 
enlargement is an improvement, step by step, upon 
what has preceded. It makes for a higher civiliza- 
tion. . . . Superficial politicians may, for a time, 
deceive the uninformed, but more and more will all 



61 



• • THE BUSINESS CONSCIENCE • • 

this be clearly seen by those who are now led to 
regard aggregations as injurious. 

As it happened, the politicians— and the voters— did not 
buy this particular gospel of wealth. And neither did 
many businessmen. Starting in the farm states, where arti- 
ficially high freight charges dictated by the rail trusts 
were particularly hated, legislators began enacting anti- 
trust laws. The first federal statute in this field, the 
Sherman Act, followed in 1890. It declared: "Every con- 
tract, combination in the form of trust or otherwise, or 
conspiracy, in restraint of trade or commerce among the 
several states, or with foreign nations, is hereby declared 
to be illegal." 

The Sherman Act was far from a perfect legal instru- 
ment, because of its vague phrases and the failure of Con- 
gress to define such terms as "trust," "combination," and 
"restraint." Furthermore, little effort was made to en- 
force the new law until 1902 when President Theodore 
Roosevelt adopted a vigorous antitrust policy. 

One of T.R.'s first moves was against the Northern 
Securities Company, a trust through which the elder 
J. P. Morgan and James J. Hill won control of the once- 
competing Northern Pacific and Great Northern rail- 
roads. 

Many businessmen— Morgan included— failed to grasp 
the significance, or earnestness, of Roosevelt's action. 
Morgan, long accustomed to free-wheeling without fed- 
eral interference, revealed his attitude at a White House 
meeting with the President: "If we have done anything 



62 



• • THE BUSINESS CONSCIENCE • • 

wrong, send your man to my man and they can fix it up." 
He soon found that things didn't work that way any 
more. The Supreme Court eventually did the fixing, or- 
dering the breakup of the Northern Securities Company. 

Came now the "muckrakers"— energetic journalists for 
popular magazines who exposed trusts, municipal cor- 
ruption, banking and insurance abuses, and many other 
evils in a detailed fashion never attempted before on such 
a scale. The public read their articles and demanded re- 
form. And it wasn't only the public that was concerned. 
Business itself often was in the forefront of the reform 
movement. 

Leading the parade of businessmen who initiated dras- 
tic changes in business practices were the retailers, nota- 
bly the owners of big city department stores and the 
chains which were just beginning to operate on a na- 
tional scale. Because these men dealt directly with the 
public and sought large markets, their reforms repre- 
sented enlightened self-interest. But this fact did not de- 
tract at all from the significance of their innovations. All 
of us remain in the debt of men like Edward A. Filene, 
Marshall Field and John Wanamaker. 

Filene did much to establish the one-price system of 
merchandising. That is, he had his clerks sell goods at 
plainly marked prices, without the haggling that had been 
characteristic of department store operations. He also did 
a great job in connection with the establishment of credit 
unions to protect his employees from loan sharks. And in 
my own company, Marshall Field was a leader in estab- 
lishing the theory that "the customer is always right." 



63 



• • THE BUSINESS CONSCIENCE • • 

He made it a rule that the customer could buy anything 
from Marshall Field & Company and, if it were not en- 
tirely satisfactory, it could be returned for credit or a 
cash refund with no questions asked. This practice cre- 
ated a sensation at the time. 

Many manufacturers followed the retailing pioneers 
in revolutionizing their operations. And again it was a 
matter of enlightened self-interest— further evidence to 
support the widely-held belief that good ethics are good 
business. Manufacturers often were motivated to raise the 
tone of their operations because their goods were moving 
into national markets and they needed national accept- 
ance and national goodwill. The emergence of brand 
names was a part of the picture. 

Even when government stepped in and enacted laws to 
regulate business, it did so as much for the protection of 
competition as the protection of the public. The Federal 
Trade Commission Act of 1914 was designed to insure 
fair methods of competition and to protect small firms 
from the encroachments of industry giants. The Pure 
Food and Drug Act of 1906 was enacted to put a halt to 
the stream of nostrums and poisons that were flooding 
the market as medicine— and doing great damage to the 
reputable segment of the drug industry. 

In these cases, and others, business was curbed by gov- 
ernment only when there was demonstrable evidence 
that abuses were not being corrected by industry itself. 
And in many instances, the new laws were applauded as 
much by reputable businessmen as by consumers. 

It certainly would be wrong to think of these laws as 



64 



• • THE BUSINESS CONSCIENCE • • 

purely negative in their impact on business. These meas- 
ures were designed to protect business as a whole and to 
assist it. 

Side by side with the enactment of federal statutes 
came self -regulation by business itself. There was a new 
zeal to draft formal ethical codes for individual firms and 
entire industries, with trade associations often taking the 
lead. Many of these codes were very specific, using lan- 
guage that provides a good clue to the sort of chicanery 
that inspired them. To cite but one example, these were 
among the unfair practices pinpointed in a code adopted 
by the National Association of Ice Cream Manufacturers 
during this period: 

Inducing a customer or competitor's employee to 
introduce foreign substances into a competitor's 
goods or to otherwise injure its salability or condi- 
tion. 

Bribing competitor's employees for any purpose 
or spying on competitor's plants. Trailing competi- 
tor's delivery and sales agents. Bribing railroad em- 
ployees for information about competitor's ship- 
ments, or the use of any means for the procuring of 
a competitor's business or trade secrets. 

Inducing competitor's employees to leave in such 
numbers as to disrupt his organization or embarrass 
his business. 

To sue a competitor for purpose of intimidation. 
To force a competitor out of business unless he 
agrees to keep out of certain territories. To with- 



65 



• • THE BUSINESS CONSCIENCE • • 

draw advertising unless competitor's advertising is 
excluded, or unless certain discriminatory favors are 
granted. To withdraw patronage from a firm sup- 
plying materials if same materials are sold to 
competitors. 

Depriving a competitor of transportation facili- 
ties through bribery of railroad employees or other- 
wise, or the use of any means whereby the 
movement of a competitor's product is hampered. 

Bidding up prices of raw material to a point where 
business becomes unprofitable, for the purpose of 
driving weaker competitors out of business. 

Giving away goods or supplies or samples other 
than is customary in such quantities as to hamper and 
embarrass competitors, or in such volume as to have 
the effect of giving a rebate. 

Furnishing or offering exceptional and unusual 
store or advertising equipment to a competitor's cus- 
tomers as inducement to a customer to change. 

If these practices were commonplace enough to war- 
rant specific censure in a code drafted by the trade group 
representing the ice cream industry, imagine what must 
have been happening in larger and more competitive 
lines! In truth, things were so bad that business itself was 
not afraid to call a spade a spade and work for reform. 
And the results were salutary. 

It has been said that more progress was made in elevat- 
ing the moral standards of business between 1900 and 
1915 than during any other period. But just as the public 



66 



• • THE BUSINESS CONSCIENCE • • 

was ready to accept the business reformation as enduring 
and effective, the scandals of the Harding administration 
—engineered by greedy businessmen and venal office- 
holders—threatened to destroy the newly-won public 
confidence. 

Responsible businessmen again took the lead in de- 
manding that the business community act quickly, and 
in a no-nonsense fashion, to dispell the latest threat to 
public confidence by making a renewed effort to clean 
up its own affairs. One man who minced few words in 
issuing such a call for action was Edwin B. Parker, board 
chairman of the Chamber of Commerce of the United 
States. In his address to the Chamber's annual meeting in 
1928, Mr Parker said: 

Business does not exist unto itself alone. Business 
exists only by reason of what it does for others. It 
finds its opportunities to continue and to develop 
only in advancing the welfare and happiness of all 
those from whom it buys, those to whom it sells, and 
those whom it employs. In the final analysis business 
deals with human welfare and human happiness. Its 
function is to find ways of promoting human wel- 
fare and of adding to the opportunities for human 
happiness. . . . 

The recent conspicuous examples of individuals, 
prominent in big business, becoming intoxicated 
with power and involved in transactions tainted with 
fraud and corruption, violating every principle of 
sound business conduct, holding themselves above 



67 



• • THE BUSINESS CONSCIENCE • • 

the law, are not peculiar to this day nor to the pro- 
fession of business. Every generation, every profes- 
sion, has its unfaithful members. But business . . . 
must, in order to maintain its professional status and 
to reap the unquestioned advantages of group ac- 
tion, scrupulously discharge its group responsibili- 
ties. 

Among these responsibilities is to see to it that the 
profession of business is purged of those pirates 
whose acts stigmatize and bring business generally 
into disrepute. . . . 

This Chamber is committed to the principle that 
Government should not enter the realm of business 
to undertake that which can be successfully per- 
formed in the public interest by private enterprise. 
This principle is politically and economically sound. 
We are here concerned in pointing out to business- 
men everywhere that this principle is in far less dan- 
ger from the propaganda of radical agitators than 
from the members of the business profession who 
are faithless to their obligations, who break down 
public confidence, and who provoke Government 
regulation. 

Congressional investigations of particular business 
activities are sometimes bitterly denounced. Many 
Congressional investigations are of the highest value 
to the public, including business. The demoralization 
to legitimate business that sometimes follows in their 
wake can be largely avoided by organized business 



68 



• • THE BUSINESS CONSCIENCE * • 

doing its own investigating, and frankly and fully 
laying all pertinent facts before the Tribunal of Pub- 
lic Opinion. A business which cannot stand this acid 
test is not entitled to prosper. The public, which is 
entitled to know the facts, will be satisfied with 
nothing less. Organized business should itself per- 
form this task in its own and in the public interest. 
Failing to do so, Congress should and will act. 

. . . Every member of the profession of business 
who fails to observe the canons of decency and fair 
play and good sportsmanship, or everyone who, 
living up to those canons himself, lacks the courage 
to speak out in condemnation against that minority 
which brings business into disrepute, is "slacking" in 
his duty— in his duty to himself, in his duty to busi- 
ness, and in his duty to the public. And organized 
business, if it is to continue to deserve public confi- 
dence, must brand such slackers business outlaws. 

Had Mr. Parker made this address twenty-five years 
earlier, I suspect he would have been branded himself as 
a business renegade. But in 1928 he was a business states- 
man. All of which speaks well of the progress made dur- 
ing the early decades of this century. 

I find it more than a little disturbing, however, that 
Mr. Parker's words can be repeated today— thirty-five 
years later— and sound just as timely as in 1928. To me, 
this fact seems a measure of the progress that must yet 
be achieved. 



69 



• • THE BUSINESS CONSCIENCE • • 

No one in business should be satisfied with the ethical 
standards of business until the words of Edwin B. Parker 
become as dated as those of Andrew Carnegie. And even 
then, as history tells us, new moral problems which we 
cannot easily envision today will be demanding solution. 



70 



..f 



» < M , , i 



THE RHSJIVESSMM 
AFTER HOURS 



r~\ . (ye cannot see, hear, smell, taste or touch one of 
V l/( J our most P ersona l possessions— our individual 
* ^^ code of ethics. Yet our code is an inseparable 
part of us and it can be a priceless asset or have less value 
than a lead nickel. The worth of a personal code will vary 
from individual to individual. And even in the case of 
any particular person, it is apt to fluctuate from year to 
year— even from week to week— as our ideas, attitudes 
and practices change. I don't know what the statisticians 
and scholars would say, but I suspect there are very few 
people in this world who share precisely the same ethical 
outlook. 

While ethics are very personal, we must remember that 
each individual's ethical behavior can and must be meas- 
ured against objective standards. As the Business Ethics 



73 



• • THE BUSINESS CONSCIENCE • • 

Advisory Council has said in its Call for Action, "The 
ethical standards of American businessmen, like those 
of the American people, are founded upon our religious 
heritage and our traditions of social, political and eco- 
nomic freedom. They impose upon each man high obli- 
gations in his dealings with his fellowmen, and make all 
men stewards of the common good." Therefore, in grap- 
pling with problems of business morality, we must always 
remember that individual performance must stand ready 
to be judged by deep rooted, traditional standards. 

Most important of all, we must understand that the 
question of business ethics is not set off in a compartment 
of its own. It is part of a broader picture that embraces 
our whole existence. 

One respected dictionary supplies this definition of 
ethics: "The science of human duty in its widest extent." 
I like this definition because its scope emphasizes the fact 
that ethics are a part of "the whole man" and cannot 
properly be confined to any single phase of a person's 
life. 

Of course, some people lead what is known as a "Sun- 
day" life. They carefully observe all the formalities of 
their religious faith and are known for their regular at- 
tendance at services in church or synagogue. Yet these 
same people, in many cases, become tough and even un- 
ethical in their business dealings. Perhaps innocently and 
without thinking, they come to regard sharp business 
practices as indicative of smartness. They do not stop to 
consider the fact that they have set for themselves a dou- 
ble standard which makes a mockery of the individual's 



74 



- • THE BUSINESS CONSCIENCE • • 

responsibility to try to do his human duty in its widest 
extent. 

I recall one of my early Sunday school teachers, a 
lawyer who was an excellent instructor from the stand- 
point of his knowledge and analysis of the Bible. But his 
voice had a hollow ring that mirrored his activities on 
weekdays. I knew what this man did in his political rela- 
tionships; I knew that he set one neighbor against an- 
other, one friend against another. 

So here we have a man— maybe you, maybe me— who 
has set for himself, consciously or otherwise, a double 
standard. This is the man we must look at; the man who 
tries to break up his personal ethical code and slip the 
shattered pieces into separate compartments. 

If we sincerely want to elevate our business standards, 
we must begin by analyzing our entire pattern of living, 
including our life outside of office hours. 

At this point, I feel I must be personal in order to give 
tangible meaning to the very personal subject we are 
considering. It is difficult, of course, to be introspective 
and to attempt to measure your own attitudes and prac- 
tices, to see if you are really applying in your own life 
the basic ethical principles you're thinking about and 
talking about— and writing about. It is difficult, also, to 
give illustrations from one's own life because you can 
easily seem egotistical or give the impression of parading 
your own virtues. And yet, unless we each make our 
own self-analysis and see how we apply abstract prin- 
ciples to ourselves, then we really haven't made the sub- 



15 



• • THE BUSINESS CONSCIENCE • • 

ject become meaningful; we haven't done what needs to 
be done. 

A good place to begin making this personal inventory 
is in relation to the home, considering first our ties with 
those closest to us. If we do not maintain high standards 
in dealing with them, and fully meet our responsibilities, 
we hardly can expect to fulfill our duty toward business 
associates. 

In this connection, it is basic— and obvious— that a man 
must set a good example for his children. He cannot be 
satisfied to tell them fairy stories when they are very 
young or to be a good fellow and toss a football with 
them as they grow up. He must, in ways much broader 
than these, illustrate in his own character and actions the 
kind of person he believes his son or daughter ought to 
become. 

There is no fixed rule or rote that he must follow in 
setting this example. It might include prayer at meals or 
in the evening; it might omit them altogether. The things 
that count most are our instinctive actions and words- 
even our unexpressed thoughts; all the intangibles that 
govern our close family relationships. 

The job of being a good parent is much more difficult 
today than when I was a boy. There are so many added 
distractions facing young people; it is easier to go places 
and do things; there are new and interesting books and 
periodicals; there are radio and television programs; there 
are interesting people to watch and to hear— including 
people more interesting than one's parents, if you please. 
And, of course, the same distractions face a mother and 



76 



• • THE BUSINESS CONSCIENCE • • 

father so they often fail to take the time, or develop the 
interest, to set an example for their children. 

Some months ago, I was visiting one of our daughters 
who lives several thousand miles from our home. We sat 
down one evening and talked for quite a long time. We 
talked about the things she was doing, the role she was 
playing in church and community affairs— yes, and in 
local politics. I was very much interested, and quite 
pleased, when she said that many people in her little town 
had asked what kind of training she had received to make 
her so interested in taking part in the Boy Scouts and the 
Girl Scouts and the Sunday school and community activ- 
ities of all kinds. She couldn't give them a definitive an- 
swer. But she did recall, she said, that her father and 
mother had done these things and that they had made 
them seem worthwhile; that the word "service" had been 
a good word in her home; that it had meant something. 

In our discussion, we got to the question of generosity 
and giving. We discussed, as we had many years before, 
one's attitude toward giving. And we agreed on the same 
principle that we had found acceptable twenty-five years 
earlier: that one can be generous without great means; 
one can give according to his means, by tithing or follow- 
ing a similar principle. And we discussed the point that 
one doesn't wait until he or she is wealthy or has lots of 
time before giving funds or services. If one cannot give 
a thousand dollars to his family or a charity or someone 
who needs a college education, he can give one hundred 
dollars or ten dollars or five. And he can always give a 



77 



• • THE BUSINESS CONSCIENCE • • 

kind word and can always show an interest, can always 
advise and help. 

As part of setting an example, does a father discuss his 
business affairs openly with his wife and children? Does 
he point out that his decisions, little or big, are the same 
that others have to make and that his children will face 
in the years ahead? That these decisions differ only in 
degree. And that he, without literally saying so, simply 
has one rule to follow: "Is this the right thing to do?" 

If he shares with his wife and children this type of fam- 
ily relationship, he does two things: he allows himself 
time for his own judgment to mature with help or sug- 
gestions from his family, and he is unconsciously— in a 
very easy and natural way— setting an example that will 
stand his children in good stead for a long time to come. 

As we see our three children now from time to time 
(they are married and have children of their own), we 
often ask them, "What percentage of your income are 
you saving? What are your plans for the education of 
your children?" They smile because they remember that 
from the time they could first talk and listen, we had 
said to them: "We don't know what will happen to the 
family finances later on; we may be all right or we may 
not be. But we want you to know we are going to try to 
plan with you for your education. We have a few stocks 
and bonds and we have dividends coming in, not large 
but consistent, and the little sums add up to a much 
greater nest tgg than you might think." So we made this 
promise to our children: "Every dollar of dividends, 
every dollar from any source other than salary, will go 



78 



• . THE BUSINESS CONSCIENCE • • 

into a savings account for each of you. And when you 
are ready for college, the money will be yours to do with 
as you please— but it is being saved primarily so you may 
finance your college educations." 

Our two girls were very close in age and by the time 
they were graduated from high school, we figured each 
had just about the right amount to finance four years of 
college. One actually ended up with a surplus that she 
used to buy a car which was used on her honeymoon; 
the boy she married was still in college and not able to 
afford a car. The other girl spent all her money in col- 
lege and had nothing left. Well, this is natural; this is the 
difference between two people. 

Our son reached college age some years later and, by 
that time, there was money enough to finance two addi- 
tional years of graduate work. I hoped he would take 
advantage of the opportunity but I left the decision to 
him; all of the money was his. 

"You can use it as you see fit," I told him. "You can 
spend it the first month or the first year, if you want." 

"Do you want to see the checks and know exactly how 
I spend it?" he asked. 

"No," I answered, "I want you to take the full re- 
sponsibility." 

"I'll have some left over when I finish college," he 
promised, which pleased me beyond words— the more so 
when he made good his vow. 

The way in which I financed my own college educa- 
tion was vastly different. Our youngsters had heard about 
my situation, having passed through the usual stage of 



79 



• • THE BUSINESS CONSCIENCE • • 

showing great curiosity about their parents' past. And it 
may be that, in this fashion, I set an example which 
helped my children in the management of their college 
funds, even before they were born. You never can be 
sure what particular facet of your own life eventually 
may prove of great value in guiding your children. 

None of my seven older brothers or sisters went to 
college; in fact, only two or three completed high school 
because they had to go to work at an early age to help 
support the family. My own ambition to go to college 
drew no particular encouragement and there was no pos- 
sibility of getting financial help from home. Fortunately, 
a college education wasn't as costly in those days, but it 
was a struggle to finance one's own way, nonetheless. 

At one point, I went to Roanoke, Virginia, to apply 
for a job as a "news butcher" on a train— hoping to add 
to my college fund. I was told I would need a blue suit 
with brass buttons and a seventy-five cent uniform cap. 
I had a little more than a dollar in my pocket, so I told 
my prospective employer that I could meet the require- 
ments if he would let me have the brass buttons for a 
quarter. He agreed and I got a sister to sew them on my 
one double-breasted blue suit. While working on the 
train, I exposed the brass buttons. But when going to 
church or any dress-up gathering, I turned the coat the 
other way to show the regular buttons. 

By the time I entered the University of North Caro- 
lina in the fall of 1915, 1 had saved a total of $62.50. By 
working at various odd jobs on the campus— waiting on 



80 



• • THE BUSINESS CONSCIENCE • • 

table for board, for example, and acting as agent for a 
suit pressing establishment— I managed to get along. 

Our children knew, from stories like these, the value I 
placed on a college education, and the amount of effort 
that the dollars to pay for such an education represent. 
I suspect this may have had at least a little bit to do with 
the fact that they managed their funds so well. 

Obviously, my own upbringing differed sharply from 
that of our children, especially from an economic stand- 
point. But, like my children and youngsters everywhere, 
I had before me the example of my father. 

My father was a very stern and religious man. He came 
of a poor family and he remained poor during all the 
years that he was raising nine children. When I was born, 
he was a tenant tobacco farmer in south-central Virginia 
but moved, a year later, some eight or ten miles across 
the border into North Carolina. We moved so he and 
the older brothers and sisters could find work in the cot- 
ton mills at wages ranging from fifty to ninety cents for 
a ten-hour day. 

A man of more than average intelligence and charac- 
ter, my father eventually became a carpenter of sorts 
and later opened a very small grocery business. Out of 
this enterprise he eked an existence but never made any 
real money. 

Sunday school and church services were a weekly rit- 
ual for our family and we had a rather spartan, formal 
religious atmosphere in the home. 

My father didn't want any of us to mistreat anyone or 
to allow ourselves to be mistreated. If a person was pat- 



81 



• • THE BUSINESS CONSCIENCE * * 

ently unfair or using influence based on power or wealth, 
he resented it and, by his example, we understood that 
we should resent it, too. 

I recall vividly that at the age of twelve, when I was 
in the sixth grade, the school principal was a tyrannical, 
poorly-educated man who did the bidding of the school's 
owner— the same "big boss" who once gave me a quarter. 
On one occasion in class I challenged one of the prin- 
cipal's assertions that I believed was dead wrong. This 
stooge schoolmaster hit me across the face with a text- 
book and announced that I would recognize that he was 
in charge or get out of school— the only one in town. 

My father, when I spoke to him about the incident that 
evening, agreed that I would be better off to go to work, 
even at five cents an hour, and wait until a public school 
was built. He preferred that I not be beholden for a poor 
education to a powerful individual who controlled the 
lives of the people in the same way he controlled his 
business— by using power and wealth and influence with- 
out regard to rights or wrongs and with no thought of 
exerting moral leadership. I remained out of school for 
nearly two years. 

Some ten years later, after I had graduated from col- 
lege and had come back to this rural mill town, the same 
man who once had owned the schools was putting his 
hooks into every part of the county government. By this 
time the county operated the schools but the mill owner 
still dominated the educational system, through gifts and 
bribes to members of the school board. In one instance, 
he had a school built on his property so the value of his 



82 



. . THE BUSINESS CONSCIENCE • • 

adjacent lands would increase. Nothing was said about 
this, however. The people who had enough influence to 
challenge the scheme— the mill managers, store owners 
and preachers— were so scared of this man and his power 
that they dared not speak out. 

Although I had no influence in the community, I hired 
a lawyer and brought suit against the man. I had a good 
lawyer and he charged me little for his services, because 
he believed in my cause. Confidently, he pleaded the case 
in court, convinced the law was on our side. He did not 
reckon on our adversary reaching the jurors. We lost 
the case. The school was built and the timid community 
went on its way, incapable of mustering enough moral 
indignation or courage to ever do anything against the 
interests of this powerful mill owner. 

If you wink at practices you know in your heart are 
not right, if you give in to people of influence and wealth 
or people who can do you favors— that kind of thing goes 
right through one's life, personal, business and political. 
Without question, I came to this view quite uncon- 
sciously because of my father's example. 

Many of the difficulties we have in our society are 
with people who want an inside track or some special 
privilege and feel they should be treated differently than 
others. The businessman who takes this attitude does 
much to damage the image of all businessmen. The same 
goes for politicians. 

Shortly after I became governor of North Carolina, 
one of my assistants received a telephone call from a 
state senator from the North. "I was picked up for speed- 



83 



• • THE BUSINESS CONSCIENCE • • 

ing by one of your highway patrolmen," the caller an- 
nounced, "and he gave me a ticket. I'm chairman of the 
traffic safety committee of our Senate and I want you to 
tell the governor to fix this ticket. We'd do the same for 
you in our state." My assistant explained that we did not 
fix tickets for our own state senators or for U.S. senators, 
or for our secretary of state or the son of the governor- 
all of whom paid speeding fines. The visitor couldn't un- 
derstand this and neither could many of our local politi- 
cians. They thought the governor was a terrible ingrate 
to refuse such small favors to those who had helped elect 
him. 

By setting a good example, fathers can provide the 
anchors that many young people need on occasion to 
keep them from drifting into dangerous waters. And 
others outside the family often can do the same, even for 
youngsters they barely know. In this connection, I recall 
the pride we took, back in 1910, in an industrial Y.M.C.A. 
established in our community. The organization had a 
bright and energetic secretary who formed a governing 
board of teen-age boys— to teach us responsibility, to 
teach us ethics. As part of the program, he had what was 
called a "bean supper" every Monday night. It cost ten 
cents a plate and consisted mostly of beans and what we 
knew as "loaf bread." At these suppers, some volunteer 
leader from the community would challenge us to always 
do the right thing regardless of the magnitude of the 
temptation we might face. I think these suppers and our 
associations with the governing board did a lot to keep 
us anchored. 



84 



• • THE BUSINESS CONSCIENCE • • 

I needed an anchor, too, because of a particular temp- 
tation that accompanied one of my assignments at the 
mill. I helped to fix up the payroll, counting out the 
workers' cash and sealing it in envelopes. My own wages 
were so meager that there was a strong temptation to 
"even accounts" by dipping into the till. 

Speaking again of education, I believe that anyone who 
makes a personal inventory of his ethical attitudes and 
practices should not ignore his role as an old grad. We 
all know that whatever amount we paid for our college 
education, it wasn't enough to cover the actual cost. Our 
educations were subsidized in good part through the gifts 
of alumni and others. The successful businessman obvi- 
ously is in a position to at least attempt to pay off this 
debt which he owes to his college, thus enabling young 
men to continue enjoying the same benefits he received. 

It's heartening to note that many of our largest corpo- 
rations now will match, dollar for dollar, the alumni con- 
tributions of their employees. These companies feel a 
moral obligation to help meet the actual cost of educa- 
tions which provided them with valued talent. 

Not long ago, I introduced President Kennedy to a 
group of businessmen who are working with us in the 
Commerce Department to further the program of ex- 
panding American exports. One of the men we selected 
for this national committee had been a poor boy who 
attended a Southern university on a scholarship. He later 
went to work for one of the mail order houses and was 
making several thousand dollars a year. But he decided 
to strike out on his own, and in 1949 he borrowed $4,500 



85 



• • THE BUSINESS CONSCIENCE • • 

to start his own business. By 1962, his firm's sales ex- 
ceeded $50,000,000 a year. This extremely successful 
man has a well developed sense of social responsibility. 
He appreciates what was done for him by the college he 
attended and now offers to any son or daughter of his 
employees a college scholarship of $500 a year. At the 
time I talked with him, he had more than forty of these 
scholarships going— and was happy to take on more if 
the young people claimed the opportunity. 

In contrast with this man's policy, I believe many other 
business and professional people are thoughtlessly con- 
tributing to a lowering of the moral tone of many of our 
colleges and universities, to the great detriment of our 
young men and women. I refer to alumni support of pro- 
fessionalism in intercollegiate athletics. 

A great many institutions of higher learning make a 
business out of at least one major sport. Athletics, so 
often termed character-building, thus becomes a cynical 
and hypocritical commercial operation. And in the proc- 
ess, many alumni lose sight of the real reasons for sup- 
porting their alma mater. 

In 1961, I addressed the graduating class at the Uni- 
versity of Maryland, an institution that once had its 
troubles with overemphasis of sports. I welcomed the 
opportunity to express my thoughts on the subject: 

I think it is unfortunate that in some colleges, 
there still seems to be a difference of opinion about 
which is more important— athletics or education. 

Now I played on teams in college, and I am fully 



86 



• • THE BUSINESS CONSCIENCE • • 

aware what a wonderful thing sports can be— in their 
proper place— and I am for sports and good teams. 
But their place is secondary. And when you start 
buying basketball teams, for example, start handing 
out scholarships for brawn and physical skill rather 
than brains, and a desire for education, you are mix- 
ing values badly and heading for trouble. . . . 

The reason for this lingering nonsense that old 
alma mater must have winning teams can be traced, 
I think, squarely to us alumni. Through some 
strange, immature quirk, we seek the prestige of as- 
sociation with a winner. Thus we apply pressure on 
the old school to build up its athletic plant, and the 
school, mindful of alumni contributions, may not be 
strong enough to say no. 

I think it's about time the aging rah-rah boys grew 
up— and let up. If they really need to borrow pres- 
tige, let them borrow the best there is— the reputa- 
tion of a school where education, quality education, 
comes first, last and always. 

Perhaps I offended a lot of old grads who see nothing 
wrong with the present system. Personally, I see nothing 
right with a system that makes a university a willing part- 
ner to cynicism and hypocrisy. Especially when these 
evils are subtly transferred to the thinking of the student 
body, which sees shabby ethical standards embraced by 
two of the groups they normally admire most: the cam- 
pus athletes and the successful alumni. And it is equally 
bad for the alumni who put up the cash to support the 



87 



• • THE BUSINESS CONSCIENCE • • 

system. If it becomes apparent that you can buy a win- 
ning combination of football or basketball players, you 
may think you can buy anyone; that every man has his 
price. Also, there is one other inevitable consequence of 
enormous importance from a moral and ethical stand- 
point: the corruption of young athletes. 

I felt personally betrayed when I learned of the arrest 
of some North Carolina basketball players who conspired 
with professional gamblers to shave points and rig odds. 

One of these players, Lou Brown, told his story to 
Look magazine and, reading his account, I came to feel 
that we, the alumni of the University, had been a party 
to the betrayal. We outbid North Carolina State, New 
York University and Duquesne for the services of this 
boy from a poor family in Jersey City. We made his ed- 
ucation a cash deal from the start. We wanted a winner 
and were willing to buy one. The gamblers wanted a 
winner, too, and they bought one just as easily. 

Isn't it evident by now that the gambling scandals that 
threaten to wreck intercollegiate sports are a product of 
the cynical athletic subsidy program? Isn't it apparent 
that a college player who is bought and paid for by one 
set of interests is ready prey for another? 

I think it's time our schools began fielding the best 
teams possible from their regular student body, without 
recruiting and hiring top talent from far and near. I be- 
lieve we would be surprised and happy with the results— 
and win just as many games. And as we individually gave 
thought to our responsibilities as alumni, we would not 
be distracted from our obligation to support education. 



• • THE BUSINESS CONSCIENCE • • 

Another important aspect of the ethical stance of "the 
whole man" involves his relations with his neighbors. 
Does one look upon neighbors as a burden to be borne? 
Does one take them for granted? Or does one live in close, 
natural contact with them so they can say, "We like 
neighbor so and so; you can trust him." If a man has the 
right attitude toward neighbors, he does not gossip about 
them, try to outshine them, become jealous of them, or 
take them for granted. He is interested in how they are 
getting along, in their health, in their children, in their 
views— in being their understanding associate. 

Together with his neighbors, or even without them, he 
also goes one step further and takes part in community 
activities. He realizes that someone must do these things 
and that a good community does not just spring up, nor 
does it maintain its quality and standing without con- 
tinued dedicated service. And so we must give time, 
energy and thought to how we can best serve our com- 
munity. Instead of criticizing our schools, we must take a 
constructive interest in them. Instead of berating the local 
school board, we must be ready to serve on it— and to 
shoulder the criticism of our neighbors. 

I remember telling an audience in June 1955, a year 
after the Supreme Court issued its school desegregation 
implementation decree, that one of the most challenging 
opportunities in the future, particularly in the Southern 
states, would be to accept membership on local school 
boards— to take part in the tough decisions, to look after 
the educational needs of the entire community. 

A man who would be a "whole man" and whose life 



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• - THE BUSINESS CONSCIENCE • • 

is to be well-rounded must see that honest and sincere 
leadership and participation in family, neighborhood and 
community activities will be helpful not only to his own 
children now and in the future, but also to the whole of 
society and, in some measure, to future generations. And 
it will prepare him better for responsible business leader- 
ship. 

Inevitably, an individual's personal ethical code in- 
volves attitudes toward the responsibilities of a voting 
citizen. What does the good citizen owe to his com- 
munity, state and nation? Does he take part directly in 
"the nasty game of politics"? Does he understand that 
politics is government and that his country has done 
pretty well under its political system? That a citizen, 
through active participation in politics, can help to clean 
up situations that should be cleaned up? 

When I retired from business in my early fifties, I de- 
cided to spend the rest of my life in public service. Some 
friends asked if I was going into politics. Without really 
weighing the question, I quickly replied, "Not me!" But 
they pressed the point, saying, "What have you been 
making all the speeches for? Why have you been telling 
us that political activity is the responsibility of a citizen 
toward his government? Why shouldn't you serve in 
politics and practice what you've been preaching?" 

Well, my inquisitors won. Almost unconsciously, I had 
taken a negative point of view because it didn't seem that 
I was the one to get personally involved. And yet, as I 
have served, I have realized that these people were right. 
I had to make good my theories, my advice. The man 



90 



• • THE BUSINESS CONSCIENCE • • 

who would criticize and theorize would do better to get 
into the middle of the fray and translate his theories and 
complaints into action. 

Right from the start in politics, I found that many of 
my beliefs could readily be transformed into actions that 
I felt were for the betterment of the state and its govern- 
ment. Of course, I can't say that everyone agreed. 

One of the first ethical problems facing any candidate 
for public office involves the use and management of cam- 
paign contributions. In my first political race, for lieu- 
tenant governor of North Carolina, I did not spend all 
the funds contributed so I made pro rata rebates. A lot 
of politicians, hearing about this, thought I was a strange 
bird, indeed. The fact was that, in state campaigns, it had 
long been the practice— after a successful race— to claim 
you had spent more than you actually did spend. This 
paved the way for a post-election fund drive to cover the 
campaign "Deficit." And a lot of people— particularly 
those who had not supported the successful candidate- 
felt they couldn't refuse to kick in to these slush funds 
for politicians who soon would be taking office. 

Actually, I never have had a code of political ethics, 
any more than I've had something that could be labeled 
a business code. In both fields I have tried to govern my 
actions by the same standards which apply to all my other 
activities. While politics and business may present special- 
ized ethical problems peculiar to these areas, it has been 
my experience that the problems can be resolved by ap- 
plying the broad standards of the whole man. 

I think one of the few things to remember as we enter 



91 



• • THE BUSINESS CONSCIENCE • • 

into various activities involving the family, the neighbor- 
hood, the community, the business world, or whatever, 
is that we proceed in a natural and sincere manner, avoid- 
ing actions that are artificial or motivated by a concern 
for appearances. And we must try to be consistent, seven 
days a week, in the standards we observe. This makes 
for an easy, normal relationship and our judgments and 
actions tend to become instinctive and constant. Although 
this is easier said than done, each of us certainly can set 
such a goal. 

A very simple but dramatic incident comes to mind to 
illustrate the instinctive way in which a man acts when 
he feels an individual responsibility to help maintain the 
moral and social standards of our society. It involved 
Colonel John H. Glenn, Jr., our first world-orbiting As- 
tronaut. 

A few days after receiving the plaudits of his fellow 
citizens, Colonel Glenn demonstrated his courage, his 
conscience, his instinct for doing the right thing, in a 
way that I found fully as inspiring as his globe-circling 
flight. 

Colonel Glenn prepared carefully for his flight. He had 
hundreds of scientists backing him up. He had millions 
praying for him. He had a world looking anxiously to his 
success. But in an incident that occurred just a few days 
later, near his home in Arlington, Virginia, he was alone 
—with his conscience and his character to guide him. 

On a Saturday evening, the Colonel went to a friend's 
home to pick up his teen-age daughter, who had been at- 
tending a party. He found some roughneck boys milling 
around the house and one of them threw a beer can on 



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• • THE BUSINESS CONSCIENCE - • 

the lawn. To the boy who threw the can, Colonel Glenn 
said, "Pick up that can." The boy paid no attention. "I'll 
give you ten seconds to pick up that beer can," warned 
the Colonel, who did not know the youths and was him- 
self unrecognized. Sullenly, the boy picked up the can. 

Colonel Glenn then overheard one of the boys suggest 
to the others that they go to a neighborhood church to 
see what was stirring. It happened to be the Colonel's 
church and he followed, to make certain that no harm 
was done. When he arrived, the boys were crowded 
around the minister in the parking lot, cursing him as he 
urged them to leave. The Colonel approached and echoed 
the clergyman's request. But the boys did not budge. 
Colonel Glenn stepped over to their car to get the license 
number so he could report the incident to the police. One 
of the young ruffians rushed over and stood in front of 
the license tag. The Colonel pushed him aside and, as he 
did so, one of the boys took a swing at him. Colonel 
Glenn pinned the young man's arms and quickly got 
control of the situation. The boys left rather hurriedly 
and the police were notified. The Colonel returned to 
Cape Canaveral without disclosing his part in the affair. 
He went back as a citizen with a clear conscience, having 
done his duty calmly, almost involuntarily, because it 
was the right thing to do. 

Within a week of this episode, something happened 
across the Potomac River in our nation's capital that 
contrasted sharply with the Colonel's cool response to 
duty. A group of thugs beat up a bus driver and took his 
money while thirty passengers watched in silence. The 
passengers were casual, indifferent and cowardly, not 



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• • THE BUSINESS CONSCIENCE • • 

realizing that if one had gone forward to aid the driver, 
others would have followed. To make matters worse, 
only one seventeen-year-old boy responded when the 
driver asked later for the names of the witnesses. And 
police discovered that the boy gave a fictitious address. 

Have you ever asked yourself what you would do 
under circumstances similar to these? Don't ask yourself 
what you'd do on the battlefield or what you'd do in 
orbit. What would you do at the church, in front of 
your home, or on a bus? 

The lack of a sense of personal responsibility, the 
failure to have a sense of moral priorities, is too prevalent 
among our citizens, both young and old. Some months 
ago, I heard a sermon by Dean Sayre of Washington's 
National Cathedral. The Dean told of a National Guard 
general who was approached in New Orleans in 1939 by 
someone who sought his reactions to Adolf Hitler's 
menacing antics, intimating to the general that these con- 
stituted an international danger. 

"Well," the general responded, "when the Mardi Gras 
is over, perhaps we'd better look at the thing you're 
talking about." 

Probably each of us has our own Mardi Gras and we 
must enjoy it to the fullest in our own selfish way before 
we decide what ought to have priority in our thinking 
and our actions. But if we fail to take the time, individu- 
ally and collectively, to analyze and strengthen our per- 
sonal code of ethics, we will not be prepared to meet the 
ethical problems that arise in our business, social or po- 
litical activities. 



94 



6 



BUSINESS 
AND GOVERNMENT 







n many occasions during the past decade, while 
I have been in government at both the state and 
federal levels, I have noted— and stated— that the 
average businessman or industrialist seems to have great 
difficulty understanding, and appreciating, the role of 
government in the economy, or seeing the ethical side of 
relations between business and government. 

It is basic that the ethical businessman— the one who 
would do his human duty in its widest extent— must do 
what is right by the rest of society. And that means doing 
right by government as well. The businessman who fails 
in his duty to government is not ethical, any more than 
the man who fails in his duty to his family, neighbors and 
community. 
A great number of businessmen resent many of the 



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• • THE BUSINESS CONSCIENCE • • 

things that our federal, state and local government do. 
They discuss among themselves, and intimate to the 
public, that much of this government is unnecessary, 
wasteful, and should be abolished. They speak of govern- 
ment encroachment on the business community, central- 
ization of power, and a trend toward socialism. They 
don't stop to consider that government reflects the atti- 
tudes, wants, and needs of all of society and that, since 
this is an industrial society, business thinking is mirrored 
very often in the actions and policies of government. 

Also, there is much careless thinking and careless talk 
about government being against business when, in fact, 
what is done by government is designed to help one seg- 
ment of business against the harmful actions of another 
segment. 

As a government official, I have met often with busi- 
ness groups around the country and tried to come to grips 
with some of the problems and attitudes which, I believe, 
stem in many cases from confused thinking. In these 
meetings, where we have taken our hair down and tried 
to speak frankly and reasonably, I have asked my busi- 
ness friends: 

Have you ever tried to figure out why government is 
meddling in your affairs and the affairs of the public 
through its regulatory bodies? Have you ever made an 
effort to understand why there are so many agencies to 
inspect meats, poultry and other foods, to inspect tene- 
ments and other types of housing in the interests of health, 
sanitation and safety? Have you asked why we have a 
Federal Trade Commission, Securities and Exchange 



96 



• • THE BUSINESS CONSCIENCE • • 

Commission, Federal Power Commission or Interstate 
Commerce Commission? 

If you study the origins of these agencies, you will 
have to draw the conclusion that all these things, trouble- 
some and expensive as they may be, become necessary in 
modern, thoughtful government because a minority of 
people in professions, businesses and other groups act un- 
ethically, act illegally, or fail to do what the public— and 
responsible businessmen— regard as the correct and proper 
thing to do. 

In these discussions, I often add: Do we ever ask our- 
selves, as individuals and as members of business and pro- 
fessional groups, whether we have the courage or the 
interest to try to police ourselves, discipline ourselves, 
clean up our own affairs— or do we finally have to admit 
we are too timid or casual to shoulder these responsibili- 
ties? 

Earl W. Kintner, a Republican attorney who was 
chairman of the Federal Trade Commission during the 
latter years of the Eisenhower administration, told a busi- 
ness group in New York not long ago: "As I see it, either 
private enterprise in the United States assumes a larger 
role of voluntarily regulating its advertising and other 
business practices, or the government necessarily will fill 
the vacuum by a higher degree of compulsory economic 
control." Mr. Kintner added that he hoped the business 
community would act on its own because, "in a democ- 
racy, the authority of faceless government can never 
satisfactorily substitute for the self-discipline of the in- 
dividual free citizen." 



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* • THE BUSINESS CONSCIENCE ♦ • 

As Mr. Kintner indicated, where government regulates, 
someone has failed to self -regulate. And I might add that 
the business world is not alone in this predicament. Labor, 
also, with the great power it has accumulated in recent 
decades, must act responsibly and police its own affairs 
or government will step in, because the public will de- 
mand it. 

Another point often overlooked in discussions of fed- 
eral regulation is the clamor of business itself for regula- 
tion—of the "other fellow." As President Kennedy re- 
marked recently in addressing a business audience: 
"Nearly every action taken by this government and by 
previous administrations in the field of antitrust actions, 
or actions by the Federal Trade Commission, have been 
based upon complaints brought by businessmen them- 
selves. This is in the interest, therefore, of business as well 
as the general public." How easy it seems to be to forget 
this fact. How often business itself asks government to 
do something after failing to take actions on its own that 
would make federal intervention unnecessary. 

There is a glaring inconsistency here that extends 
beyond demands for regulation of the "other fellow." 
Shortly after the steel price dispute, the New York Times 
observed that"the very businessman who fights tax curbs 
on his expense account or his overseas earnings may be 
found supporting a government subsidy for his business, 
fighting postal rates that would make the postal service 
self-sustaining, or asking Washington to clamp down on 
oil imports." These were but a few of the many examples 
of this kind that could be cited. 



98 



* - THE BUSINESS CONSCIENCE • - 

Do businessmen really believe that this inconsistency- 
goes unnoticed? You can be sure that millions see what is 
happening and, as a direct consequence, develop a cynical 
attitude toward business— precisely because business itself 
often seems cynical and self-seeking in its dealings with 
government. There is a danger here that every business- 
man should recognize, and attempt to eliminate. 

Government, of course, must be fair in dealing with 
business as with the rest of the electorate. President Ken- 
nedy dealt at some length with this subject in addressing 
the 1962 annual meeting of the Chamber of Commerce 
of the United States. He said that, as President, he had 
been impressed by the degree to which the best interests 
of the national government and the country are tied to 
the enlightened best interests of its most important seg- 
ments. "But I have also been impressed," he added, "that 
all the segments, including the national government, must 
operate responsibly in terms of each other, or the balance 
which sustains the general welfare will be lost." At an- 
other point, Mr. Kennedy said: 

While government economists can point out the 
necessity of increasing the rates of investment, of 
modernizing plant productivity, while Washington 
officials may urge responsible wage-price decisions, 
we also recognize that beneath all the laws and guide- 
lines and tax policies and stimulants we can provide, 
these matters all come down, quite properly in the 
last analysis, to private decisions by private individ- 
uals. 



99 



• - THE BUSINESS CONSCIENCE • • 

It is easy to charge an administration is anti-busi- 
ness, but it is more difficult to show how an adminis- 
tration, composed we hope of rational men, can 
possibly feel they can survive without business, or 
how the nation can survive unless the government 
and business and all other groups in our country are 
exerting their best efforts in an atmosphere of under- 
standing, and I hope cooperation. 

After the President finished, a businessman from Utah 
told the New York Times, "He didn't fool me a bit." 
And many in the audience apparently felt the same way 
because they accorded the President a very cool recep- 
tion. I can only conclude that many who heard the Presi- 
dent listened without thinking, with closed minds. If they 
had followed the logic of his presentation, I'm sure they 
would have found his reasoning compelling. And there 
is no question in my mind but that the President, a man 
of logic, meant exactly what he said. 

As Mr. Kennedy emphasized on this occasion, and on 
many others, government needs business profits. The 
enterprise that does not earn a profit cannot, in the long 
run, even be a good citizen. Former Dean Donald Kirk 
David of the Harvard Business School phrased it this 
way: "Under our system, only the business that makes a 
profit makes a contribution. For a time, a business that 
does not make a profit can continue in existence, but only 
because it is subsidized by other parts of society. Over the 
longer period, it canont be a good producer of material 



100 



• • THE BUSINESS CONSCIENCE • • 

satisfactions or even a good taxpayer; in the long run it 
becomes a drain on society." 

Business and government are completely interde- 
pendent. And it behooves both to approach common 
problems in a spirit of cooperation, making a sincere ef- 
fort to understand each other's point of view. The busi- 
nessman or government official who wants to be ethical 
can operate in no other way. 

I have spent many years in both government and busi- 
ness and I can testify that, in many ways, government is 
a business like any other, but with a unique product of 
responsible service to the public that no competitor can 
supply. 

Shortly after I was elected lieutenant governor of 
North Carolina in 1952, a Business Week reporter came 
to me and asked, "What happens to a businessman's 
thinking when he gets into politics?" I told him that the 
businessman can and should take into politics or govern- 
ment the same basic ideas and ideals that governed his 
conduct in business. And there is no reason why he can- 
not employ the same management techniques that he has 
used all his life. The chief difference is that a businessman 
can say to a subordinate, "You do this or else." In 
government, you can't hold up a club like this, but must 
persuade people that they should act in a certain way 
which you feel is best for the interest of the state as a 
whole or the nation as a whole. 

I have told many audiences throughout the country 
that if people want to get things done, they should tackle 
them first without government's assistance. If this proves 



101 



• * THE BUSINESS CONSCIENCE • • 

impossible, they should work at the local level, at the 
lowest rung of government. And they should not come to 
the state government or the federal government asking 
for things they can provide for themselves. 

Although I am sure the great majority of business 
people would subscribe completely to this philosophy, 
very often individuals will duck their responsibility when 
the time comes for action rather than words. They will 
happily spend their time criticizing, but fail to do those 
things that are necessary if government intervention is 
to be avoided. And if a bad situation does arise in govern- 
ment, they often will not make the effort to get into 
government or even to become active voting citizens to 
see that the situation is corrected. 

A great many federal programs— more than you might 
think at first blush— are founded on the principle that it 
is best to give incentive to local initiative; that you can't 
help people who are unwilling to help themselves. I be- 
lieve an outstanding example is the area redevelopment 
program administered by the Department of Commerce 
in conjunction with other agencies. This is a program 
that requires everyone's energy and cooperation. And, 
believe me, nothing finally is done in Washington under 
this program unless the initiative comes from the local 
level. Each community does its own planning and federal 
help is matched where possible. Had local interests been 
unwilling to pitch in, however, you may be certain that 
we soon would have seen an insistent demand that Wash- 
ington take over the whole job. 

It is regrettable, to say the least, that businessmen are 



102 



• • THE BUSINESS CONSCIENCE • • 

not always so willing to work cooperatively with govern- 
ment; that they often act as though government were an 
implacable foe. I refer to that group of businessmen who 
take the attitude that where government is concerned, 
no holds are barred; that "beating the government" is an 
admirable pastime. 

Just as my textile friends took advantage of my 
presence in government during OPA days to claim a 
benefit they did not deserve, others today are taking ad- 
vantage of the national security program that insures 
their own survival. 

The Senate Permanent Subcommittee on Investigations, 
with Senator McClellan of Arkansas as its chairman, held 
extensive hearings in 1961-62 on charges of profiteering 
in the missile program by both management and labor. 

Even if only a few businessmen attempt profiteering, 
a great many play a cat and mouse game with Uncle Sam 
where antitrust laws, regulatory statutes and taxes are 
concerned. In these areas, many businessmen attempt 
legal brinksmanship, violating the spirit of the law while 
barely observing the specifics. In the process they some- 
times fall over the brink into clear violations of the law. 

In the antitrust field, businessmen sometimes argue 
that they cannot avoid brinksmanship because of alleg- 
edly vague legal provisions. Henry Ford II discussed this 
subject in his notable Minneapolis address on business 
ethics: 

Along with most businessmen, I believe that strong 
and effective antitrust law is essential, that it pre- 



103 



• • THE BUSINESS CONSCIENCE - • 

serves competition and over the years has benefitted 
all groups in our society, business included. But it is 
important that we understand that, in broad areas 
of action, the law is far from a clear guide . . . 

Business must often act in a legal no man's land, 
moving on the advice of counsel— if indeed it is 
aware of the need for counsel— and not knowing 
whether at some future time it may be found in vio- 
lation of antitrust or other laws. 

Professor William A. Orton, writing in Fortune some 
years ago, struck the same note. He reported that al- 
though many laws deal with fairness, "if you seek from a 
study of these laws to ascertain the basic meaning of the 
word 'fair,' you are in for a course in applied jurispru- 
dence that will reduce you to the mental condition of 
Pontius Pilate." 

Although many businessmen would agree with Mr. 
Ford and Professor Orton, this does not give them a 
license to stretch "fairness" beyond reasonable limits. I 
think this is a basic difficulty. 

A businessman who wants to be ethical and law-abiding 
will understand that the law merely sets a minimum 
standard. He is under no compulsion to push his policies 
and practices to the ragged edge of the law. And if more 
businessmen would avoid claiming that last half inch be- 
fore the brink, we would have a more competitive econ- 
omy and fewer legal proceedings. 

Of course, I would like to see an ideal antitrust law 
that would leave no one in the slightest doubt as to what 



104 



• • THE BUSINESS CONSCIENCE • • 

is legal and illegal. However, it is much easier to criticize 
these statutes as they stand than to put suggested improve- 
ments on paper. I think that businessmen who are quick 
to criticize could profit from reviewing the Report of the 
Attorney GeneraVs National Committee to Study the 
Antitrust Laws. This report was prepared by some sixty 
lawyers, law professors and economists, generally of con- 
servative bent, during the Eisenhower administration. 
They studied the statutes for nineteen months at the di- 
rection of a national administration that, to the best of 
my knowledge, never was accused of being anti-business. 
Even so, this distinguished committee made no recom- 
mendations for giving the laws greater precision. The 
committee left these laws as they were. 

Brinksmanship often is evident, also, in business atti- 
tudes toward other regulatory statutes, notably the Fed- 
eral Trade Commission's broad mandate to curb "unfair 
methods of competition in commerce and unfair and de- 
ceptive acts or practices." 

To cite but one of the major areas subject to FTC 
jurisdiction, advertising presents a continuing problem. 
Yet it is a problem that would become insignificant if 
business adopted a simple rule recited by Paul Rand 
Dixon, the FTC chairman, to the Advertising Federa- 
tion of America: 

You would be doing your industry and the Ameri- 
can people a very great service if routinely and auto- 
matically your first appraisal of an advertising idea 
would concern its fairness and honesty. Then, if the 



105 



• • THE BUSINESS CONSCIENCE • * 

idea has even a suggestion of a bad smell, throw it 
away. You'll save time and trouble if you search for 
another idea that you— and we— don't have to worry 
about. 

Mr. Dixon noted that there have been countless cases 
in which businessmen, forced by the government to re- 
vise their advertising, have done an even bigger volume 
of business after shifting to claims that could be sup- 
ported. "We at the FTC often wonder," he said, "at the 
short-sightedness of a merchant who, with a good prod- 
uct to sell and a good reputation to maintain, will risk 
so much for that extra buck." 

Taxes is another field in which "beating the govern- 
ment" becomes a popular game. Almost everyone will 
tell you that taxes are too high— local taxes, state taxes, 
federal taxes; all taxes. And some act as if it were 
perfectly okay to undertake individual campaigns to re- 
duce taxes— their own— by chiseling. The number of sup- 
posedly responsible people who attempt tax evasion 
amazes me. And the gall which some display in this regard 
is absolutely incredible. For example, the Internal Rev- 
enue Service has found even millionaires who failed to 
file an income tax return. 

Mortimer M. Caplin, our Commissioner of Internal 
Revenue, has said: "Our tax system rests not just on 
words, and rules, and systems of organization. It rests 
also on an educated citizenry, bred on the tradition of 
honesty, of responsibility, of each man and woman pul- 
ling his own weight for the good of the whole." 



106 



• • THE BUSINESS CONSCIENCE • • 

I suppose a lot of the brinksmanship we see, in the tax 
field and elsewhere, stems from a dislike for particular 
statutes. Some people seem to feel that if they don't like 
a law, they're not really doing wrong to ignore it or give 
it their own elastic interpretation. And so they subvert 
the law instead of using our democratic processes to seek 
its repeal or amendment. 

But even when people agree with the law's scope and 
purpose, they may violate it anyway— for a quick profit. 
Examples of this sort can be found in connection with 
the export control program administered by the Depart- 
ment of Commerce. 

I feel certain that no responsible businessman in the 
United States opposes our efforts, fully sanctioned by 
law, to keep strategic goods out of Communist hands. 
Nevertheless, we have uncovered cases in which busi- 
nessmen have deliberately made illegal shipments of this 
kind because of greed. 

In one instance, the vice president in charge of the 
western division of a large firm was told by subordinates 
that a customer in Western Europe intended to forward 
certain goods to East Germany and Hungary. The cor- 
porate official knew perfectly well that he would violate 
the law if he approved the shipment. However, the goods 
involved represented a large investment for his company, 
and were about to be loaded aboard ship. To salve his 
conscience, the vice president informed his European 
customer that the items could not be forwarded to Iron 
Curtain countries. The customer replied that it was too 



107 



• • THE BUSINESS CONSCIENCE • • 

late; commitments already had been made. The American 
businessman still made no move to halt the shipment. 

On another occasion, the export manager of one of 
the largest firms in California was told by his European 
distributor that large orders for shipment of a strategic 
commodity to a certain European country far exceeded 
that country's requirements. Instead of making further 
inquiries, the export manager destroyed the letter con- 
taining this warning and went ahead with the shipments. 

Another point that troubles me about business attitudes 
toward government involves the often-heard complaint 
that government is corrupt. On this score, I think Adlai 
Stevenson spoke for many of us who know government 
from the inside when he said, during his first campaign 
for the Presidency: "Public officials from top to bottom, 
from the high and the hazy to the low and the lazy, do 
not corrupt each other. We, the people, corrupt them. 
Behind every fix, there's a fixer; behind every bribe, 
there's a briber." 

It is disturbing to me that in almost all recent instances 
of corruption in government, the man who offered a 
bribe, who wanted influence at the cost of honor, was a 
businessman. In the Department of Commerce, we re- 
cently had two incidents of this kind in as many months 
—a worrisome total in view of the many other agencies 
that deal with business, and the brief time span involved. 

Some months ago, we were discussing on a completely 
confidential basis, and at a rather high level, certain mat- 
ters affecting the maritime industry. We had a meeting 
of some of our staff and reached a basic policy decision. 



108 



* - THE BUSINESS CONSCIENCE • • 

Within two hours, a career employee met representatives 
of the industry at a Washington restaurant and revealed 
our decision. We fired the man as soon as we learned of 
his action and made it clear that anyone else disclosing 
confidential information would get similar treatment. 

A few weeks later, I was discussing a situation affect- 
ing the petroleum industry with one of our top Com- 
merce supervisors. The name of a particular oil company 
was mentioned— one which allegedly had been involved 
in bribery during the Eisenhower administration. Rather 
casually and blandly, the supervisor said to me, "Why, 
it's well know how these people operate; they haven't 
changed. One of them intimated an offer to me the other 
day if I would swing a decision their way." 

In one of his first messages to Congress, President 
Kennedy dealt with "ethical conduct in government," 
saying: 

. . . Public officials are not a group apart. They 
inevitably reflect the moral tone of the society in 
which they live. And if that moral tone is injured— 
by fixed athletic contests or television quiz shows— 
by widespread business conspiracies to fix prices— by 
collusion of businessmen and unions with organized 
crime— by cheating on expense accounts, by the ig- 
noring of traffic laws, or by petty tax evasion— then 
the conduct of our government must be affected. In- 
evitably, the moral standards of a society influence 
the conduct of all who live within it— the governed 
and those who govern. 



109 



* • THE BUSINESS CONSCIENCE • • 

The ultimate answer to ethical problems in gov- 
ernment is honest people in a good ethical environ- 
ment. No web of statute or regulation, however 
intricately conceived, can hope to deal with the 
myriad possible challenges to a man's integrity or 
his devotion to the public interest. Nevertheless, 
formal regulation is required— regulation which can 
lay down clear guidelines of policy, punish venality 
and double-dealing, and set a general ethical tone for 
the conduct of public business. 

Even with the new guidelines specified by the Presi- 
dent, the major burden rested, as always in the area of 
morality, with the individual. The same situation prevails 
in business and other walks of life. Every man must ap- 
praise and tune up his own standards in order to improve 
the tone of the whole. As Henry Ford II put it in his 
Minneapolis speech: "I recognize that no amount of law, 
no amount of written codes of ethics or pious promises 
will take the place of a rigorous and unshakeable integ- 
rity in the total conduct and in the ideals of industrial 
management." Playing fair with your government is an 
important part of that total conduct. 



110 



7 



BUSINESS AND 
THE NATIONAL INTEREST 



m 



t the height of Washington's evening rush hour 
on Tuesday, April 10, 1962, Roger M. Blough 
of the United States Steel Corporation made his 
way to the White House for a hastily-arranged meeting 
with President Kennedy. In seeking the appointment, the 
board chairman of U.S. Steel had given no hint of what 
he had in mind; only that he had something important to 
say to the President about steel. The meeting began at 
5:45 p.m. with Mr. Blough handing the President a four- 
page mimeographed press release that began: "For the 
first time in nearly four years, United States Steel today 
announced an increase in the general level of its steel 
prices. This 'catch-up' adjustment, effective at 12:01 a.m. 
tomorrow, will raise the price of the company's steel 



ill 



• • THE BUSINESS CONSCIENCE • • 

products by an average of about 3.5 per cent— or three- 
tenths of a cent per pound." 

This was the beginning of what the New York Times 
later headlined as "The Steel Crisis: a 72-Hour Drama 
With All-Star Cast and Plot of Many Surprises." It was 
the beginning of an historic episode that deserves close 
and thoughtful study by all leaders of business, labor and 
government. 

President Kennedy and most of his fellow citizens were 
surprised and shocked by U.S. Steel's announcement. 
Just three days earlier, the United Steelworkers union 
and industry representatives had signed the last of a series 
of new labor contracts that increased fringe benefits by 
ten cents an hour. The agreements were unprecedented. 
First, the union abandoned its customary insistence on a 
wage increase. Second, the pacts were nailed down three 
months before the old contracts were due to expire. 

To achieve these ends, President Kennedy and mem- 
bers of his administration had, for months, been urging 
both sides at the bargaining table to recognize the fact 
that the entire nation had an enormous stake in their deci- 
sions. Members of the administration repeatedly made 
these points: 

—Steel historically has been a "bellwether" industry, 
an economic weather vane, because it produces the basic 
ingredients for many thousands of manufactured items. 
During the postwar years, the course of steel wages and 
steel prices has set a pattern for the entire economy. And 
because the halting of inflation is a widely-accepted na- 
tional goal, it is of the utmost importance that the steel 



112 



* • THE BUSINESS CONSCIENCE • • 

industry operate on a non-inflationary basis. Otherwise, 
there can be no hope of ending the wage-price spiral in 
other sectors of the economy. 

—To achieve a non-inflationary situation, any increases 
in labor costs must not exceed year-to-year increases in 
productivity; i.e., output per man-hour of labor. Further- 
more, labor cannot fairly claim all the benefits of gains in 
productivity because these stem, in good measure, from 
investment in more efficient production facilities. Part of 
the pie, in justice, belongs to capital— to the companies 
and their stockholders. 

—Ending inflation in steel is a goal far transcending the 
borders of the fifty states. The world watches to see 
whether the United States can stem the inflationary tide 
in this vital industry. Failure would mean that American 
goods would carry higher price tags in foreign markets 
and be that much harder to sell. At the same time, for- 
eign-made items would be cheaper in relation to U.S. 
goods in this country. Exports would be hurt and imports 
would increase. The balance of payments deficit— the dif- 
ference between the amount of money leaving the coun- 
try and the lesser amount coming in— would increase. 
Foreigners would harvest an increasing flood of dollars 
which would be used to step up purchases of U.S. gold. 
As the nation's gold reserve dwindled, the moneymen of 
the world would lose faith in the stability of the dollar 
and an international monetary crisis could be the result. 

—Steel management and steel labor have the signal op- 
portunity to rise above purely selfish considerations and 
demonstrate that the free enterprise system can work to- 



113 



• • THE BUSINESS CONSCIENCE * • 

ward the solution of pressing national problems without 
the threat of compulsion. 

Management and labor apparently accepted the ad- 
ministration's argument. And with the signing of the new 
contracts, all hands appeared ready to congratulate each 
other on contributing to price stability in the national 
interest. The President saluted the agreements as non- 
inflationary and many people publicly agreed. There 
seemed cause to hope that the wage-price spiral had been 
dealt a fatal blow. 

Then Mr. Blough went to the White House to report 
that U.S. Steel was adding six dollars to the average rate 
of $170 for a ton of steel. He did so when the ink was 
barely dry on the "non-inflationary" contracts. 

Next morning, a prominent stockholder of U.S. Steel 
wrote Mr. Blough to express her "intense indignation and 
I may say outrage at your raising the price of steel at this 
time." The woman described it as "the most ill-timed, 
high-handed, unpatriotic act by a responsible industry 
that has been done in years." And she hastened to remind 
Mr. Blough that she was not a Kennedy Democrat— that 
she had been chairman of a national campaign committee 
that worked hard for the election of Richard M. Nixon in 
the 1960 Presidential election. 

Bethlehem Steel, the industry's second largest producer, 
announced during the morning that it would match the 
increases ordered by U.S. Steel. A day earlier, after the 
annual stockholder's meeting, Bethlehem President Ed- 
ward F. Martin had been quoted as telling newspaper re- 
porters: "There shouldn't be any price rise. We shouldn't 
do anything to increase our costs if we are to survive." 



114 



• • THE BUSINESS CONSCIENCE • • 

Bethlehem subsequently claimed Mr. Martin had been 
misquoted. 

Other major steel producers announced higher prices 
during the day. Joining the parade were Republic, Jones 
and Laughlin, Youngstown and Wheeling. Inland, Kaiser 
and Colorado Fuel & Iron said they were studying the 
situation. 

U.S. Steel argued that higher selling prices were 
necessary in order to widen profit margins and gain more 
cash for the financing of new machinery. The company 
said it was caught in a profits squeeze and implied that 
rising wage costs were the principal villain. Yet the price 
increase came at a time when, according to government 
figures, productivity was rising faster than labor costs. 
And labor costs per unit of steel output were essentially 
the same as in 1958, when the industry last raised its 
prices. 

President Kennedy had a news conference scheduled 
for the afternoon, and he worked through the day with 
his assistants on a statement that would express his own 
dismay and concern at the action of the steel industry 
leaders. It was a memorable statement, delivered with 
what the Times described as "cold fury" before live tele- 
vision cameras. 

The price increase, said the President, was a "wholly 
unjustifiable and irresponsible defiance of the public in- 
terest." He said the industry officials had shown "utter 
contempt" for their fellow citizens and he concluded with 
this significant statement: 

"Price and wage decisions in this country, except for 



115 



• * THE BUSINESS CONSCIENCE * • 

a very limited restriction in the case of monopolies and 
national emergency strikes, are and ought to be freely 
and privately made, but the American people have a right 
to expect in return for that freedom, a higher sense of 
business responsibility than has been shown in the last two 
days." 

A round of official investigations already was under- 
way or promised. Senator Estes Kefauver and Represent- 
ative Emanuel Celler announced that they favored 
inquiries by the Senate and House Antitrust Subcommit- 
tees. The Department of Justice and the Federal Trade 
Commission began their own investigations, to determine 
whether illegal collusion lay behind the stampede to in- 
crease and whether U.S. Steel had monopoly power in 
the industry. 

I had long-scheduled engagements in Philadelphia and 
New York on Thursday, April 12, which was the day 
after the President's news conference. I met with re- 
porters in both cities, answered questions and made this 
statement: 

Ten days ago, I congratulated both the steel in- 
dustry and the steel union for their statesmanship in 
reaching an early agreement that appeared to serve 
the public interest. It was my feeling that a major 
obstacle to further economic recovery had been re- 
moved. 

The price increase announcements by U.S. Steel 
and other major steel companies change this picture 
completely. Tuesday evening a handful of men said, 



116 



• • THE BUSINESS CONSCIENCE • • 

in effect, that Steel comes first, the United States of 
America second. 

I am shocked and disappointed at this totally un- 
expected development. We have in this country, and 
I hope we will always have, a free economy. Subject 
to antitrust laws and public services requiring regula- 
tion, any firm or industry is free to set prices as it 
sees fit. It is free to make mistakes, and I believe the 
steel industry's mistake is a tragic one. Its action is a 
disservice to the country and to the business com- 
munity as a whole. 

I looked upon the price increase as an anti-business 
move by a corporation that should have known better. I 
had three reasons for taking this position, and I outlined 
them in my statement: 

1. The American people might be "so antagonized by 
this development that all business might lose favor in the 
public eye." 

2. It might initiate "a round of inflation which can 
only be harmful to business generally, especially small 
business." 

3. It would "give encouragement to those who con- 
tend that it is not possible to get responsible action on a 
voluntary basis, and that only compulsion and regulation 
will work." 

Obviously, the action of steel industry leaders was not 
the way to stem inflation. It was not the way to build a 
stable economy. On the contrary, it was the way to re- 
duce demand— and prosperity— at home while inviting in- 



117 



• • THE BUSINESS CONSCIENCE • • 

creased competition from foreign goods and substitute 
materials both here and in overseas markets. It was the 
way to foment new labor strife. It was the way to under- 
mine the dollar. 

These were the long-run factors that U.S. Steel ig- 
nored in favor of a short-run gain. But the President of 
the United States could not ignore these factors. He felt 
compelled to resist Big Steel's decision with the resources 
at his command. And he had no power of compulsion. 

As the New York Times pointed out in its review of 
the steel "drama," the administration's reaction to the 
price increases involved four principal areas of action. 
First, there was a rallying of public opinion in support of 
the administration stand, with the President taking the 
lead at his news conference. Second, appropriate agencies 
began investigations of possible antitrust violations. 
Third, government officials contacted steel users, who 
would be the first to feel the price pinch, seeking their 
support for a rollback of the increases. Fourth, there was 
direct contact with steel producers. Here are excerpts 
from the Times account of this fourth phase: 

Drs. Heller and Gordon (Walter Heller and Ker- 
mit Gordon * of the Council of Economic Advis- 
ers), and possibly some of the other economists, had 
argued that the principal thrust of the administra- 
tion's effort should be to convince one or two signif- 
icant producers to hold out. In a market such as steel 

* Mr. Gordon subsequently was appointed Director of the 
Budget Bureau. 



118 



• THE BUSINESS CONSCIENCE • • 

they said, the high-priced sellers would have to come 
down if the others did not go up. 

This suggested a line of strategy that probably 
proved decisive. 

As one member of the Big Twelve after another 
raised prices, only Armco, Inland, Kaiser, C F & I 
and McLouth were holding the line. These five 
holdouts represented 14 per cent of total industry 
capacity, or 17 per cent of the capacity of the Big 
Twelve. 

Everything pointed to Inland as the key to the 
situation , . . 

At 7:45 that Wednesday morning, Philip D. Block 
Jr., vice chairman of Inland, was called to the tele- 
phone in his apartment at 1540 North Lake Shore 
Drive in Chicago. 

"Hello, P. D.," said Edward Gudeman, Under 
Secretary of Commerce, a former schoolmate and 
friend of Mr. Block's, calling from Washington. 
"What do you think of this price increase of United 
States Steel's?" 

Mr. Block said he had been surprised. 

"I didn't ask P. D. what Inland might do," said 
Mr. Gudeman several days later. "I didn't want them 
to feel that the administration was putting them on 
the spot. I just wanted him to know how we felt and 
to ask his consideration." 

Inland officials said they had not been coaxed or 
threatened by any of the officials who called them. 

The approach, which seems to have developed 



119 



• • THE BUSINESS CONSCIENCE • • 

rather spontaneously in many of the calls that were 
made to businessmen, was to ask their opinion, state 
the government's viewpoint, and let it go at that. 

On Thursday, two days after the U.S. Steel announce- 
ment, Secretary of Labor Arthur Goldberg * and Mr. 
Clark Clifford, Washington attorney and former counsel 
to President Truman, flew to New York to discuss the 
situation with Mr. Blough. Meanwhile, more phone calls 
were being made to officials of Inland and the other hold- 
out companies. 

The first big break in the impasse came on Friday 
morning— in Japan. Joseph L. Block, Inland's chairman 
who was visiting Kyoto, gave the following announce- 
ment to Keyes Beech, Far Eastern correspondent for the 
Chicago Daily Neuos: 

"We do not feel that an advance in steel prices at this 
time would be in the national interest." 

Kaiser made a similar announcement at mid-day and 
Armco decided to hold the price line but made no an- 
nouncement. The tide was definitely turning, and it 
reached flood stage a few hours later when word came 
that Bethlehem was rescinding its price increase. This 
action by the Number Two producer erased all doubt 
about the outcome. U.S. Steel had no choice but to back 
down. It did so shortly after 5 p.m. The 72-hour drama 
was at an end. But discussion of its implications will con- 
tinue as long as Americans are interested in the economic 

* Mr. Goldberg is now an Associate Justice of the Supreme 
Court. 



120 



• • THE BUSINESS CONSCIENCE • • 

history of their country. And this discussion inevitably 
will involve the ethical implications of the controversy. 

I was convinced at the time, and still feel very strongly, 
that the behavior of the top officials of U.S. Steel was 
completely wrong under the existing conditions. To put 
it bluntly, they misled the President and the public by 
withholding information or leaving the impression they 
were going along with the anti-inflation program outlined 
by the President. 

During the many weeks of negotiations with the steel 
union, the corporation at no time informed the union or 
the government that it would increase prices even if the 
workers accepted a modest settlement. Mr. Blough had 
repeated opportunities to make this disclosure to the 
President, to Secretary Goldberg, to myself, or to union 
officials. He chose to remain silent. In my judgment, this 
silence was not honest for the following reasons: 

Mr. Blough must have known that the government had 
only one purpose in urging the union to accept a modest 
settlement: it wanted to forestall an increase in steel 
prices. In fact, this was the chief justification for govern- 
ment interest in the negotiations. 

By keeping silent, Mr. Blough misled the government 
so that, in effect, the steel industry could reap the bene- 
fits of official efforts to moderate the union's contract 
demands. 

The episode also had another ethical dimension involv- 
ing the responsibility of the businessman to do right by 
his country as well as his company. And I am not speak- 
ing of mere obedience to the law. I refer to a proper con- 



121 



• • THE BUSINESS CONSCIENCE • • 

cern for the best interests of the nation as these relate to 
major economic and national security questions. I be- 
lieve it is the duty of business to conduct its affairs in a 
manner that does not deliberately thwart the achieve- 
ment of broadly-accepted national goals. 

Mr. Blough, I feel sure, was conscious— or at least self- 
conscious— of this broad responsibility. Otherwise he 
would not have called on the President with news of the 
price increase. By seeking the appointment, Mr. Blough 
tacitly acknowledged that his company's action was not 
an isolated business decision but one involving the inter- 
ests of the entire nation. And because U.S. Steel allowed 
selfish short range considerations to override these 
broader interests, its efforts did not have popular sup- 
port. 

As President Kennedy marshalled his forces to resist 
the price increase, he was not motivated by a petty desire 
for vengeance. His purpose was to preserve and promote 
the kind of economy in which sound growth, and sound 
profits would be possible— an economy able to meet in- 
creased competition from abroad; an economy ready to 
absorb the nation's expanding labor force. In short, it 
was his aim to help business prosper— even if businessmen 
were less than unanimous in expressing their apprecia- 
tion. Said Mr. Kennedy a few weeks later, in addressing 
the United Auto Workers convention: 

"I believe it is the business of the President of the 
United States to concern himself with the general wel- 
fare and the public interest— and if the people feel that 



122 



• . THE BUSINESS CONSCIENCE • • 

it is not, then they should secure the services of a new 
President." 

Time will tell whether this "steel incident" was of 
great importance or influence in the economy or whether 
it helped build up greater criticism on the part of the 
business community toward what the businessmen re- 
ferred to frequently as an "anti-business administration." 
Certainly the incident created great public discussion 
which was in itself a good thing. 

However, what we are talking about here is ethical 
behavior. Did the steel leaders or some of them mislead 
the President and the public in what they did and the 
way they did it? Further, did they fail to take into con- 
sideration the national interest as opposed to their nar- 
row, selfish interest? 

To hear the subsequent criticisms from many business- 
men, one might have concluded that the steel price crisis 
marked the first time a President ever took a firm stand 
against private interests in the name of the national in- 
terest. Yet a reading of the history books will show that 
President Kennedy's actions were mild as milk when con- 
trasted with those of certain of his predecessors. 

One of the most disturbing accounts I have read of 
government-industry controversy involving the national 
interest is given in Bernard Baruch's autobiography, The 
Public Years. As director of the raw materials section of 
the War Industries Board in 1917-18, Mr. Baruch had 
his own troubles with the steel industry— and the firm 
backing of a determined President. Mr. Baruch writes: 



123 



• • THE BUSINESS CONSCIENCE • * 

Given the businessman's conviction of the sanctity 
of his right to determine the price at which he would 
sell his goods, it was no wonder that prices were one 
of the most troublesome subjects with which we had 
to deal. We had many conflicts over this issue, the 
most memorable with the steel producers.* 

Mr. Baruch went on to say that the steel people, capi- 
talizing on a supply-demand situation gone haywire un- 
der wartime stresses, pushed their prices to exorbitant 
levels: basic pig iron from $12.59 a ton in 1915 to $52.50 
in 1917; steel billets from $19.50 a ton to $95, and struc- 
tural steel shapes from $1.20 a hundredweight to $6.20. 

Mr. Baruch's WIB had authority only to seek ne- 
gotiated agreements on prices of raw materials in short 
supply. But despite its very limited powers, the agency 
summoned sixty-five leading steel executives to Wash- 
ington in September 1917, hoping to draw up detailed 
price schedules for iron, steel and coke. 

After acrimonious debate, the steel bosses agreed to 
reduce prices on purchases by the government. But they 
insisted on maintaining grossly inflated prices on items 
ordered by the public and by the nation's allies. Because 
this position was in direct conflict with the policy of 
President Wilson, Mr. Baruch handed to Judge Elbert H. 
Gary, the head of U.S. Steel, a letter in which the Presi- 
dent agreed to seize that company or any other on the 
recommendation of the WIB. 

* Bernard M. Baruch, Baruch: The Public Years (New York: 
Holt, Rinehart and Winston, 1960) p. 63. 



124 



• • THE BUSINESS CONSCIENCE • • 

Unimpressed, Gary retorted that "you haven't got any- 
body to run the Steel Company." 

"Oh yes I have, Judge," replied Mr. Baruch. ". . . we'll 
get a second lieutenant or somebody to run it. But that 
won't trouble you very much. If those mill towns find 
out why we've taken over, they'll present you with your 
mills brick by brick." 

Big Steel capitulated shortly thereafter, agreeing to cut 
prices by roughly fifty per cent. Even at that, Mr. Baruch 
reports, profits remained excessive. 

Mr. Baruch also had difficulties with the auto produc- 
ers, after learning of their failure to observe a voluntary 
agreement to cut civilian output by two-thirds. Mr. 
Baruch and the WIB summoned the industry leaders and 
announced that three-fourths of their facilities hence- 
forth would be required for war work. The producers, 
led by John Dodge and the elder Henry Ford, resisted. 
They tartly informed the WIB that they had stockpiled 
enough steel and coal to meet their needs and would pro- 
ceed in spite of the agency's ultimatum. 

Reaching for a telephone, Mr. Baruch called William 
G. McAdoo at the Railroad Administration: "Mac, I 
want you to take down the names of the following fac- 
tories, and I want you to stop every wheel going in and 
going out." Mr. Baruch read off the names of Dodge, 
General Motors, Ford and the others, then called Secre- 
tary of War Newton D. Baker. "Mr. Secretary," he said, 
"I would like you to issue an order to commandeer all 
the steel in the following yards." And he repeated the 



125 



* * THE BUSINESS CONSCIENCE • - 

list. A final call to the Fuel Administrator was enough to 
arrange for seizure of the industry's coal supplies. 

"I quit/' said the boss of G.M. and the others followed 
his lead. 

Recalling these incidents of forty-five years ago, Mr. 
Baruch makes a comment applicable in our own time: 

"Ford, Gary and Dodge typified the problem 
which WIB faced in educating American business- 
men to the new facts of life. . . . Their pride in the 
achievements of industry and their mistrust of gov- 
ernment made it difficult for them to put national 
interest above unenlightened self-interest." * 

Because these words remain timely, I would urge all 
businessmen to evaluate their own concern for the na- 
tional interest as they consider problems of ethical con- 
duct. It is the very least one can do for his country. 

* Ibid., p. 68. 



126 



8 

BUSJ1VESS AND 
THE PUBLIC 



rxohe American consumer in a real sense rules a 
L / kingdom that boasts more riches and luxuries 
^— ^ than the fabled empires of history. Even the 
poorest of us enjoy appurtenances that would have been 
priceless in an earlier age. We are kings, each of us. Our 
smallest wants, even our subconscious desires, are catered 
to on a scale unknown to the great monarchs of antiquity. 
As kings at the retail or consumer purchasing level, 
we hold the power of life and death over almost every 
business enterprise from the corner shoeshine parlor to 
the General Motors Corporation. These in a sense are our 
subjects and they must merit our good will and patronage 
or face extinction. We consumer-kings account for two 
dollars out of every three that get spent in the U.S. econ- 
omy and we cannot be taken lightly. 



127 



• • THE BUSINESS CONSCIENCE • * 

The smart businessman appreciates the power of con- 
sumers and does his utmost to earn our good will and 
patronage. He offers a good product at an honest price. 
And he conducts his business in accordance with the best 
ethical principles. In most cases, he is ethical because it is 
his nature to want to do the right thing. Sometimes he is 
ethical because he has a well-developed instinct for self- 
preservation and knows the perils of unethical behavior. 

Not all businessmen fit this picture, however. There 
are those who think only of the present and try to grab 
all they can get in the shortest possible time. They either 
ignore morality or try to straddle the fence, being ethical 
when ethics come cheap and cutting corners when 
proper conduct might cost them an easy profit. 

They seem to forget that consumers tend to be influ- 
enced more by those who do wrong than by those who 
do right. Virtue seldom wins applause but misconduct is 
denounced from the rooftops. Perhaps this seems an in- 
justice but I'm not certain that it is. When a customer is 
treated fairly, he gets no more than he expects and de- 
serves; why should he applaud? But when he is wronged, 
he has every right to express a sense of outrage. 

It is the businessman's responsibility to give the con- 
sumer what he expects and deserves, not only because it 
is good business but because it is the right thing to do; it 
represents the fulfillment of the businessman's duty as a 
human being in an organized society. If the businessman 
fails in this duty, he not only hurts himself but his wrong 
action often can cause unjust reflection on all his col- 
leagues—simply because the customer will remember his 



128 



• ■ THE BUSINESS CONSCIENCE * • 

misdeed long after good service and proper treatment are 
forgotten. 

Some years ago, two major manufacturers of automo- 
biles brought out new models that contained serious en- 
gineering defects. One made good on all the "lemons" 
sold while the other did not. And I think you can guess 
what happened subsequently. The firm that stood behind 
its product enjoyed increased good will and sales; the 
other went into a sales and profits tailspin. 

This was a clear case of the consumer-king rewarding 
responsible conduct and punishing the irresponsible. I'm 
sure you have seen the same thing happen in your own 
community. Isn't it true that the neighborhood retailers 
who enjoy the greatest success generally are those who 
have a reputation for honest dealing? And haven't you 
seen more than one corner-cutter fold up and go out of 
business? True, the corner-cutter may get away with his 
tricks for a while— and at the expense of responsible com- 
petitors—but eventually his trickery will be his undoing. 

The responsibility for maintaining high ethical stand- 
ards in dealings with the public places a special burden 
on the small businessman. He is the one who deals most 
often, and at closest range, with the consumer-king. 
When we think of business, we may think of General 
Motors, General Electric, General Telephone and Gen- 
eral Dynamics. But when we think of businessmen, we 
are apt to think of the neighbor who sells us automobiles, 
the druggist who fills our prescriptions and the appliance 
dealer who services our television set. The great bulk of 
private businesses are small, community enterprises; the 



129 



• • THE BUSINESS CONSCIENCE • • 

ones we deal with day after day. And if they cheat us in 
any way, we tend to damn all businessmen— at least for 
the moment. 

The Business Ethics Advisory Council has received a 
number of letters from the public complaining about a 
variety of unfair business practices. Many of these in- 
volve small firms. One complaint was from an auto me- 
chanic who took the time and trouble to write that his 
dealer-employer had instructed him to waste no time 
servicing cars received from the factory— just make sure 
they run. It was the dealer's philosophy that there was 
no point in spending money to remedy a defect that the 
buyer might not detect. 

I tip my hat to this mechanic for translating his sense 
of outrage into action. And he got action. Although the 
Ethics Council is not set up to process complaints, in this 
particular case the mechanic's report was forwarded to 
the manufacturer of the auto involved. I believe all of us 
should complain in the most effective manner possible 
about situations of this sort that come to our attention. 
If a franchised dealer treats us badly and we can't get 
satisfaction, we can complain to the manufacturer who 
supplies him. We can inform our local Better Business 
Bureau, so it can put pressure on the offender to mend 
his ways or at least warn others of his tactics. If we be- 
lieve federal law is being violated, we can write to the 
Federal Trade Commission or some other appropriate 
agency. If we don't do these things, we let the law of the 
jungle take over our consumer kingdom, and our crown 
is threatened. 



130 



- • THE BUSINESS CONSCIENCE • • 

Not all complaints will bear fruit, of course. One man 
who wrote to the Ethics Council told of being whip- 
sawed between the seller and the manufacturer of a baby 
carriage, each blaming the other for a defect found in the 
carriage and disavowing his own liability. The dealer ap- 
parently wasn't concerned about his reputation in the 
community, and the manufacturer showed no regard for 
the good name of his product. It was businessman against 
businessman with the consumer caught in the middle. 
This cycle could go on indefinitely; it is the responsibility 
of one or both parties to break the cycle and protect the 
consumer. 

Situations of this kind weaken the keystone of our 
whole business system— mutual confidence. The seller in 
any business transaction shows his faith in the buyer by 
extending credit, guaranties and refunds. If the buyer 
was unworthy of this trust, the seller would suffer monu- 
mental losses. The customer, in turn, shows his trust by 
accepting performance claims, published weights, guar- 
anties and labels at face value. 

And I might emphasize that errant businessmen are not 
solely responsible for incidents that undermine mutual 
confidence. In truth, many consumers are unworthy of 
the trust placed in them by businessmen. This became 
apparent to the first Marshall Field many decades ago, 
after he inaugurated the policy of permitting customers 
of his department store to return unsatisfactory merchan- 
dise—and no questions asked. Mr. Field discovered that 
even well-heeled customers occasionally would "buy" a 
fine lace tablecloth, then return it after putting it to use 



131 



• • THE BUSINESS CONSCIENCE • • 

at a dinner party. To protect himself, he was forced to 
amend his policy by refusing to accept returned mer- 
chandise stripped of their labels. 

Much of the old philosophy of "let the buyer beware" 
has been effectively dissipated by the discipline of busi- 
nessmen in protecting their labels. Even so, labeling and 
packaging remain a persistent problem area. In the words 
of Senator Philip A. Hart of Michigan, "Day by day, 
shoppers pay more and more for less and less in bigger 
containers bearing smaller and smaller type." 

You may recall the seizure in 1962 of several thousand 
jars of Maxwell House instant coffee by the Food and 
Drug Administration. The ten-ounce jars were labeled 
"Giant Economy Size," but a major supermarket chain 
had priced them so they cost more per ounce than the 
regular six-ounce size. Even though it might seem that 
the food chain was wholly at fault here, General Foods 
had decided— even before the seizure was made— that it 
would drop the economy claim. The manufacturer rea- 
soned that since it had no control over retail prices, it 
could not honestly assure consumers that any particular 
size container would offer economy. 

Packaging and labeling, particularly in the food field, 
has become one of the arts in our modern society— an art 
that has proven a mixed blessing to consumers. While 
foods are more sanitary and items that formerly required 
much preparation are available in ready-to-eat or ready- 
to-heat form, supermarket shelves are laden— to quote 
Congresswoman Martha Griffiths— with "superlarge 
boxes, two thirds full; weight descriptions in minuscule 



132 



• • THE BUSINESS CONSCIENCE • • 
fractions; and a multitude of other subtle and confusing 



snares." 



Finding a box or jar labeled "regular" size is becoming 
increasingly difficult and "small" sizes seem to have van- 
ished long ago. In this era of merchandising superlatives, 
one manufacturer of shaving cream even feels justified 
in billing a 7 l / 2 -ounce jar as "mammoth." The once- 
familiar announcement, "One Pound Net Weight," is 
giving way rapidly to "One Full Pound"— a semantic 
conundrum that must raise many questions in the minds 
of consumers. 

To attract the eye of the consumer-king, distributors 
of ready-to-eat cereals are adopting tall, broad and ultra- 
thin packages designed to display the largest possible 
labels and give the impression of a larger box. This not 
only is deceptive but, when you open these boxes, they 
frequently tip over and dump their contents in the 
kitchen sink. 

Every shopper is familiar now with the optical-illusion 
package, can or jar that promises more than it delivers. 
The latest gimmick is to draw a three-dimensional box 
on the face of a package, so a quick glance will make the 
package seem about half an inch fatter than it actually is. 

And anyone who wants to compare prices is quickly 
involved in slide rule computations. How, for instance, 
do you compare the price of a 3. 3 -ounce package with 
that of a 3% -ounce competitor? I wonder what ever 
happened to even weights? 

Another phenomenon is the shrinking package with 
the stable price. Marketing experts argue that customers 



133 



• • THE BUSINESS CONSCIENCE • • 

would rather receive less than pay more. Perhaps so, but 
it also is the most subtle way to boost prices. And it can 
be deceptive. A Senate Antitrust and Monopoly Subcom- 
mittee was told, for example, that one baby food proces- 
sor trimmed his applesauce jars by a mere quarter of an 
ounce. Yet a mother accustomed to feeding her child 
two jars a day could unwittingly reduce her infant's diet. 

The stampede toward organized confusion in the name 
of salesmanship already has led to increasing demands for 
new federal restrictions on packaging. Inevitably, these 
demands eventually will be reflected in law if some busi- 
nessmen persist in peddling packaged trickery rather than 
packaged truth. 

A need for certain new statutes already seems appar- 
ent. To help bring greater order and safety to the fast- 
growing drug field, President Kennedy advocated in his 
1962 Consumer Protection Message that marketing of 
potentially ineffective and possibly harmful drugs be 
curbed. "It is time," he declared, "to give American men, 
women and children the same protection we have been 
giving hogs, sheep and cattle since 1913, under an act 
forbidding the marketing of worthless serums and other 
drugs for the treatment of these animals." 

Of course, the ethical businessman doesn't need such 
laws. He will give careful thought to every packaging 
and labeling decision to make certain there is no delib- 
erate deception or attempt to confuse, and that claims 
made on his labels are justified. He will give these con- 
siderations equal weight with sales appeal. For he realizes 
that an honest package and label can be just as attractive 



134 



* • THE BUSINESS CONSCIENCE * - 

and appealing as one designed to deceive; what's more, 
it will hold the public's favor long after the deceiver has 
been cast aside as untrustworthy. 

One of the most publicized cases in recent years to 
hinge on questionable product claims involved a battery 
additive called ADX-2. The promoter of ADX-2 com- 
plained to one of my predecessors that the Department's 
National Bureau of Standards had ruled unjustly that his 
product did not increase the life of storage batteries. To 
counter the Bureau's scientific evidence, the manufacturer 
offered testimonials from satisfied users of the product. 
And no one claimed the additive was harmful in any way. 

The Secretary took the promoter's side in the ensuing 
controversy and nearly fired the distinguished director of 
the Bureau of Standards. Appearing before the Senate 
Committee on Small Business, the Secretary complained 
that Bureau scientists "discount entirely the play of the 
market place." He added: "It can generally be said that 
there are no complaints but, on the contrary, many testi- 
monials to the fact that the product is good and has saved 
the users money. As a practical man, I do not see why a 
product should be denied an opportunity in the market 
place." In other words, the public should be free to 
judge for itself, regardless of scientific evidence that ad- 
vertising claims made for a product were untrue. 

Ultimately, it was decided that the product should 
meet its claims— which it didn't— or tone down its adver- 
tising. But for several years, it was a case of "let the 
buyer beware"— a philosophy that has long since been 
ethically and/or legally outmoded in most sectors of the 



135 



• . THE BUSINESS CONSCIENCE • • 

economy. Still, the buyer does have to beware in too 
many instances. 

A good illustration is the fine print in certain insurance 
contracts. Millions of us own such policies and never 
read the detailed legal language. Fortunately, the great 
majority of these policies are entirely proper— but not all. 

A friend once lost several suitcases during an airline 
trip and promptly claimed reimbursement for the loss 
under an "extended coverage" clause in one of his pol- 
icies. His insurance agent regretfully reported that the 
extended coverage, as phrased in this particular contract, 
was a sham. It applied only to the most unusual, never- 
to-happen events like, to be facetious, the mysterious 
disappearance of a wrist watch while climbing Mount 
Everest in a monsoon. The agent agreed the clause was 
blatently misleading. But he said he had been rebuffed in 
repeated efforts to get the company either to offer gen- 
uine extended coverage or leave out all reference to it. 
Of course, one of the hidden questions is why didn't the 
agent inform my friend of the limitations on the extended 
coverage when he sold the policy? 

Fortunately, many businessmen are not content to 
merely do what is legally required— to let the fine print 
speak for itself, if anyone reads it. Instead, they make a 
real effort to do everything they consider right as well as 
legal. This is the way to build an ethical society; this is 
the way to encourage ethical behavior on the part of each 
of us as individuals. 

Those who observe only the legal minimums, who 
meet their social responsibilities only under the lash of 



136 



• • THE BUSINESS CONSCIENCE • • 

compulsion, often do physical as well as spiritual damage. 
Certain aspects of the conservation problem are examples. 

Some time ago, a friend and I went on a fishing trip and 
came to a stream that once had been clean and inviting. 
Now it was dark and polluted. Nearby was a mountain- 
side of scrub growth where timber had been cut forty or 
fifty years before and never replaced. 

My friend and I stopped to look at the barren moun- 
tain and the stream polluted by industrial waste and mu- 
nicipal sewage. And we asked ourselves why these 
horrors exist. Why do we do these things, as individuals, 
as corporations, as municipalities; knowing that we are 
destroying some of nature's most precious gifts and real- 
izing that some day we must pay a price for our folly? 
Why do we do these things and then complain, as some 
do in my own state, because laws are enacted that require 
businesses and communities to spend large sums cleaning 
up streams and putting in waste disposal and sewage sys- 
tems? Why do we, who are responsible, complain be- 
cause the federal government must spend many millions 
of dollars to restore the countryside to its natural gran- 
deur? 

Are we aware of our collective responsibilities in these 
matters? Do we take them seriously? Can't we make a 
corporate and governmental conscience as responsive as 
an individual conscience? Well, individuals make up our 
corporations and governments. And if we have enough 
individuals with a conscience, then we will develop cor- 
porations and governments with that same conscience. 

The development of a collective conscience has been 



137 



• • THE BUSINESS CONSCIENCE • • 

the concern of leaders of many industries for several 
decades. One that has shown this concern, and properly 
so, because of its enormous impact on the public, is ad- 
vertising. It was the predecessor organization of the Ad- 
vertising Federation of America that established the Bet- 
ter Business Bureaus in 1912. And, in 1962, the American 
Association of Advertising Agencies took another step 
forward by producing an ethical code to replace one 
written before the advent of television. Member agencies 
must subscribe to the code, pledging that they will not 
"knowingly produce advertising which contains false or 
misleading statements or exaggerations, visual or verbal." 
Furthermore, a code violator is liable, for the first time, 
to expulsion from the trade association. 

Chairman Paul Rand Dixon of the FTC, in an address 
to the Advertising Federation, told his listeners that their 
twelve-billion-dollar industry "puts new products on the 
market and keeps good ones there; it makes jobs and 
profits and pays the tab for more public enlightenment 
than the detractors of advertising could ever hope to pro- 
vide." But he emphasized the need for self-restraint and 
self-policing, arguing that: 

"All advertising dollars buy less when any appreciable 
amount of advertising becomes suspect. Let a man eat a 
few bad oysters, and he will lose his appetite not just for 
bad oysters but for all oysters." 

Yet despite industry soul-searching and code-making, 
advertising continues to produce some bad oysters, as Mr. 
Dixon can attest. 

"Too often," he has said, "advertisers who are reaping 



138 



• • THE BUSINESS CONSCIENCE • • 

a financial harvest from a misleading claim observe, with 
no little satisfaction, that one of their competitors has 
been ordered by the FTC to stop a comparable claim. 
Do they then stop their own claims? Are they frightened 
by the handwriting on the wall? Not very much. Some 
seem quite content to continue milking the claim until 
they, too, are forced to stop." And by that time, he 
added, they probably are ready to launch a new cam- 
paign anyway. 

The antitrust laws represent still another area in which 
business must be careful to meet its obligations to the 
public. Price-fixing and practices in restraint of trade are 
illegal, and every businessman knows it. Still, these prac- 
tices persist. I clearly recall being on the fringes of this 
kind of operation during the 1920's, when I was secretary 
to the manager of a group of textile mills. 

My boss in the early days, often described locally as 
one who "could strut sitting down," used to travel to 
New York every autumn to discuss with "competitors" 
the pricing of what should have been a very competitive 
product. At these meetings, I have been told, the leading 
producer would announce his price for the coming year. 
It was clearly understood that everyone else would fol- 
low suit. The arrangement was very informal and there 
was no specific agreement; certainly there was nothing 
on paper that government investigators might uncover. 
The result, I have no doubt, was a price structure higher 
than normal competition would have allowed. The con- 
sumer was the loser. And so were the producers because 
they felt so insulated from competition that they ignored 



139 



• • THE BUSINESS CONSCIENCE • • 

technological improvements and other opportunities to 
advance efficiency and reduce costs. I suspect it was more 
than coincidental that the firm which took the lead in 
these arrangements went bankrupt; it probably wasn't fit 
to survive in a competitive business society. 

Business operations touch the public in so many ways 
that it would be impossible to catalog all the areas in 
which thought must be given to ethical considerations. 
Also, a list that might seem complete today could soon 
become incomplete. New problem areas sometimes come 
to the fore with little warning. 

In this category are the ethical problems that have 
faced many lunch counter and restaurant operators in the 
Southern states since the "sit-in" demonstrations began 
in Greensboro, North Carolina, during my tenure as gov- 
ernor. 

Some of the first demonstrations were in large depart- 
ment stores. Negro students from Greensboro's A. & T. 
College, accompanied sometimes by white students from 
neighboring institutions, would sit in a quiet and orderly 
way at the lunch counters in these stores and await serv- 
ice. The stores took the position that, as private enter- 
prises, they had a legal right to refuse service to anyone 
who entered their private property. However, they were 
in an awkward situation from the start. One store, for 
instance, had seventy-five departments, only one of 
which served food. The store was perfectly willing- 
even eager—to have Negro customers in seventy-four de- 
partments but it drew a line at the seventy-fifth. And the 
situation was further complicated by the fact that these 



140 



• • THE BUSINESS CONSCIENCE * ■ 

large stores, in many cases, were affiliated with chains 
directed from Northern cities where other branches had 
no hesitation about feeding members of any race. 

Shortly after the first demonstrations, there was a series 
of discussions with top officials of some national variety 
stores that were involved. It was the aim to help resolve 
the problem without disorder and without stirring rancor 
or hate. 

Prominent people in several large retail chains expressed 
the conviction that the Negro was justified in his de- 
mands for service. They further stated that their com- 
panies were in an untenable position in denying service 
in one department while urging patronage of others. But 
they said they would observe local customs and would 
not pioneer unless everybody else in the community 
agreed to do likewise. They didn't realize that others 
were saying that the national chains were in the best po- 
sition to demonstrate initiative and leadership and that, 
if they would accept the opportunity, there would be 
little, if any, trouble. Eventually it worked out that way 
in many communities— but only after the mettle of a lot 
of businessmen had been tested. 

Problems of this sort may be with us for some time. 
We faced one in the Department of Commerce in the 
spring of 1962. The United States Travel Service, a Com- 
merce agency, sponsored a series of regional travel con- 
ferences, one in Charlotte, North Carolina. After it was 
announced that the Charlotte meeting would be held in 
a hotel that denied service to Negroes, a local Negro 



141 



• • THE BUSINESS CONSCIENCE * • 

doctor demanded that members of his race be accorded 
the same treatment as other conference participants. 

The hotel was owned by some people in New York 
City, who were asked by the mayor of Charlotte and 
federal authorities to work out the problem on an equi- 
table basis. The hotel owners refused to do anything that 
might depart from local custom and didn't even want to 
discuss other alternatives. They said they were in Char- 
lotte to make money and that concessions to Negroes 
would cost them business. It apparently did not occur to 
them to consider their broader social responsibilities in a 
situation that should have prompted careful, deliberate 
thinking and planning. 

The federal government had not made arrangements 
for conference accommodations; these were handled by 
a local organization. On less than twelve hours' notice, 
therefore, we had to move the meeting away from the 
hotel and, with the fullest cooperation of city officials, 
we transferred it to Charlotte's fine new municipal audi- 
torium. Lunch was served there by caterers. The Negro 
doctor was invited to attend, and he did. 

One other broad topic that I feel deserves a place in 
any discussion of business and the public is business rela- 
tions with stockholders. Some may argue that a stock- 
holder is part of the corporate family and therefore not 
to be considered in the same breath with the general pub- 
lic. I believe, however, that share ownership of most 
large firms is so widely dispersed that hired managers are 
dealing with what amounts to a specialized public. And 
they have very definite obligations toward their stock- 



142 



• • THE BUSINESS CONSCIENCE • • 

holder-bosses. Failure to meet these obligations can be 
disastrous, as the victims of a number of proxy contests 
can attest. Also, stockholders often are customers— and a 
dissatisfied customer isn't apt to long remain in that cate- 
gory. He will become someone else's customer. 

In discussing stockholder relations, Business Week has 
said: "Where management sees the stockholder clearly as 
the owner of the company, its communications, ideally, 
will be built around the principle of 'full, frank and fact- 
ual disclosure' of any information that can have a bearing 
on the owners' investment." This principle is embodied 
in the securities laws and, in most instances, it is observed. 

Beyond the obligation of full disclosure, corporate 
managers have a responsibility to act, as individuals, in a 
manner consistent with the best interests of shareholders. 
For example, it would be unethical to capitalize on favor- 
able inside information by buying company stock for a 
quick profit. In such a case, you would be buying from 
a stockholder who presumably would not sell you the 
shares if he had access to the same information. 

Events of recent years also have made it abundantly 
clear that the corporate official must scrupulously avoid 
all conflicts of interest that might sway his judgment to 
the detriment of the business he serves. 

While I was still a young mill manager, making a sal- 
ary of about $3,000 a year, I invested a small sum in an 
oil and gasoline distributing business, in partnership with 
two other men who handled day-to-day operations. The 
enterprise started off in an extremely modest way but, 



143 



• • THE BUSINESS CONSCIENCE • • 

within a few years, was doing an annual business of about 
one million dollars. 

The purchasing department of our mills bought lubri- 
cants and other products of the kind distributed by my 
sideline enterprise. Because of this, I told the purchasing 
agent not to buy any of these items from our partnership 
unless they were at least equal to competing products 
and unless the price was completely competitive. One of 
my partners was absolutely mystified and quite angry 
because I refused to have the mills give preference to 
our products. 

In retrospect, I wonder if it was right to let the mills 
do any business with a firm in which I was interested, 
even though my interest was fully disclosed and the sales 
were fully competitive. I have to conclude that it would 
have been better had I adopted a tougher policy. 

This reminds me of the abrupt resignation of the pres- 
ident of the Prudential Insurance Company of America 
a few years ago. This man, Carroll Shanks, had private 
interests that, potentially, could have conflicted with 
his responsibilities to the insurance company. Mr. Shanks' 
successor outlined a more exacting company policy on 
these matters in a letter to key employees: 

I am sure every officer and employee of the Pru- 
dential is aware of the need to avoid personal situa- 
tions which might be construed as conflicts of in- 
terest—that is, any personal interest outside the com- 
pany which could make it personally advantageous 
for him to place his own interest above his obligation 



144 



• • THE BUSINESS CONSCIENCE • • 

to the Prudential. Such a conflict can exist whether 
or not the employee actually does anything wrong- 
opportunity and temptation are enough. No officer 
or employee should ever place himself in such a po- 
sition. 

When I went into public service in North Carolina, I 
examined all my business connections that might even 
remotely suggest a "conflict of interests." As a result, I 
resigned as a director of a large textile company that 
owned one or two plants in the state, but which had most 
of its holdings in other parts of the country. As a direc- 
tor, I received five thousand dollars a year plus expenses, 
and for not more than twenty or thirty hours work a 
year. It was a pleasant and profitable diversion. But I did 
not want anyone to be able to suggest that, as a public 
official, I might grant the firm any favors. Nor did I want 
my motives to be questioned if the company ever had 
any labor troubles in the state. 

The president of the firm protested strongly against 
my decision and, without telling me, went to see the 
state's attorney general. Several weeks later, the president 
came to me and announced, with some little glee, that he 
had a legal opinion from the attorney general that there 
was no reason why I shouldn't continue my service as a 
director. 

"That may be all right, legally," I told my friend, "but 
the attorney general does not control my conscience." 

On the same subject, I think the most unusual case of 
conflicting interests of which I have personal knowledge 



145 



• • THE BUSINESS CONSCIENCE • • 

involved the chief administrative officer of a regional 
housing authority in North Carolina. One project op- 
erated by the agency had been built by the federal gov- 
ernment, which held a long-term lease on the underlying 
land. When it became apparent, early in the 1950's, that 
the federal government would be disposing of interests 
in such projects, the agency chief purchased title to the 
land for less than forty thousand dollars. Some time later, 
the buildings and utilities were transferred from the fed- 
eral government to the regional housing authority. At 
this point, the housing official claimed he had title to the 
buildings and utilities as well as the land. And he offered 
to sell the "package" to the housing authority, of which 
he still was a paid employee, for more than one million 
dollars. 

A civil suit to decide the man's claim to the entire 
property, and his right— or not— to sell the holdings to the 
agency that employed him, has been pending in the 
courts for several years. Obviously, I do not know what 
the outcome will be. But my own feelings about his ac- 
tions, from both a moral and legal standpoint, were made 
evident when I refused, as governor, to ratify a "compro- 
mise" plan that would have allowed him to sell the prop- 
erty to the regional agency for roughly half a million 
dollars. From either a moral or legal standpoint, I couldn't 
see that it made any difference whether his profit was a 
million dollars or half a million— or only one dollar, for 
that matter. 

Some people of my acquaintance believe the housing 
official was technically correct in his conduct. Moreover, 



146 



• • THE BUSINESS CONSCIENCE • • 

they admire his "smartness" in figuring out a deal that 
may yet produce a million-dollar profit. These are the 
kind of people that we consumer-kings must watch out 
for, whether they are businessmen or public officials. And 
if we happen to be businessmen, we must not let our 
thinking slip into similar channels or we jeopardize the 
vital link in our free enterprise system— the point of con- 
tact between business and the public. 



147 



9 



THE ETHICS 
OF FAIR COMPETITION 



j^~~>c Texan with the improbable name of Billie Sol 
[ / J Estes was much in the news in 1962 and the 
t -^ -2 public paid great attention to every new revela- 
tion about his free-wheeling ways. They were particu- 
larly interested in Mr. Billie SoPs dealings with the federal 
government. Very little notice was paid the simple fact 
that, as a businessman, Mr. Estes was an unfair com- 
petitor. 

Long before Mr. Estes was known to many people 
outside his home town of Pecos, he got into the business 
of distributing anhydrous ammonia, a cheap nitrogen 
fertilizer used in largescale farming. The fertilizer was 
supplied by Commercial Solvents Corporation, a New 
York chemical manufacturer which soon found that Mr. 
Estes was a good customer— but didn't pay his bills. 



148 



• • THE BUSINESS CONSCIENCE • * 

Within a few years, Mr. Estes owed the corporation 
more than half a million dollars. But he managed to ex- 
tricate himself from this predicament— temporarily— and 
set his heart on becoming an even better customer. 

Of course, before he could become a better customer, 
Mr. Estes had to find buyers for more fertilizer. And the 
farmers of West Texas had many alternate sources of 
supply. Other companies manufactured anhydrous am- 
monia and many distributors were peddling it in the area. 
It was a very competitive business. The solution that 
struck Mr. Estes was to run the competition out of busi- 
ness. He did this by resorting to the law of the jungle. 
Here is how Time magazine reported the story: 

The wholesale price of anhydrous ammonia was 
$90 a ton, and a local distributor had to charge more 
than $100 a ton to break even. So it stirred up some 
commotion when Estes, shortly after setting up his 
deal with Commercial Solvents (to finance his debt), 
started selling the stuff for $60 a ton. In some intense 
price battles, he slashed his price down to $40 and 
even $20. One after another, he drove rival dealers 
out of business, sometimes picking up the pieces for 
himself by buying up the failed or failing firm's as- 
sets cheap. In a few years, Estes became the biggest 
anhydrous ammonia dealer in West Texas, and one 
of the biggest in the U.S. 

It is against the law to sell a product below cost for the 
purpose of destroying competition. Moreover, it is dirty 



149 



• • THE BUSINESS CONSCIENCE * • 

and unethical. And it is one of the quickest ways to de- 
stroy the free enterprise system. Yet this sort of thing 
happens from time to time because a few businessmen do 
not recognize their responsibilities as competitors in a 
competitive system. They want to change the rules of 
the game for their own profit. 

Of course, the great majority of businessmen recog- 
nize their duty to be fair and honorable competitors. 
They see this as an obligation to be taken just as seriously 
as those owed customers, stockholders, employees and 
government. They know, too, that unfair competitive 
practices lead to reprisals in kind— the prelude to a dog- 
eat-dog battle in which everyone is certain to lose. 

There are many aspects of competition: product qual- 
ity and variety, services, advertising, price, and others. 
Any one of these can be abused but few, if any, can lead 
to abuses faster than price. To many salesmen, price is the 
great weapon; the great concern; the thing that is central 
to their operations. Many talk price all the day long- 
even when meeting with competitors at trade association 
conventions and other gatherings. And, of course, they 
run the great risk of trying to fix prices in denial of the 
fair and open competition that is part of the warp and 
woof of good business ethics. The problem was illus- 
trated in a bit of testimony in a Federal Trade Commis- 
sion price-fixing action, quoted recently by Printers' Ink 
magazine: 

Q. Can you describe the type of conversations 
that were had? 



150 



• THE BUSINESS CONSCIENCE • • 

A. Well, frankly, you know how you do at these 
meetings. You hear a lot of tripe . . . and red tape 
which they put through, and they put on a lot of 
rigmarole and put you on these committees doing a 
lot of different things. . . . 

But, after we get rid of a lot of this stuff, maybe 
while we are at lunch or adjourning for a drink or 
something, then we start talking. Maybe somebody 
will say to you, "You so-and-so s.o.b., what did you 
do down at Bill Jones'?" And you will say, "What 
did I do?" Well, he'd say, "You give them some ex- 
tras." And then somebody calls somebody a liar and 
so forth, and then maybe he would say, "Well, I 
have got the evidence that you did and you are a 
liar," and then you would get into a fight with this 
fellow, and first thing you know, somebody else 
would come up and listen to the conversation, and 
then there would be six of them there, and they 
would be picking on you— I don't mean picking on 
me, but picking on these price cutters, you under- 
stand. 

So, well, maybe by that time they had three or 
four drinks and the thing begins to get a little 
tougher, and the drinks loosen up some tongues— of 
course, I don't drink, you understand now, gentle- 
men, therefore I was always in perfect control of 
my vocal cords, and I have a marvelous vocabulary, 
I can assure you, when it comes to calling names. . . . 
I will be frank, and if you want to crucify me I will 
add this: I would tell him further that if he didn't 



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• • THE BUSINESS CONSCIENCE • • 

stop these damn price cuttings I would show him 
how to cut prices, and many times I did cut them, 
and when I cut a price . . . you knew your price had 
been cut. 

I could go on and on— but I want to say that when 
any two businessmen get together, whether it is a 
Chain Institute meeting or a Bible class meeting, if 
they happen to belong to the same industry, just as 
soon as the prayers have been said they start talking 
about the conditions in the industry, and it is bound 
definitely to gravitate, that talk, to the price struc- 
ture in the industry. What else is there to talk about? 
And a guy like me, that doesn't drink or get high 
and go to the bar, why, of course I had to defend 
myself in some other fashion than getting drunk and 
forgetting it— is there anything else you want me to 
tell you now? 

Because prices so often are crucial in business dealings, 
it perhaps is inevitable that they will be at the root of 
many problems. Prices, rebates, allowances— these items 
come to the fore time and again in cases initiated by the 
Antitrust Division of the Department of Justice and by 
the Federal Trade Commission. I will mention one case 
which illuminates several aspects of the ethics of fair 
competition. 

A few years ago, two large wallpaper distributors were 
aroused by the persistent price-cutting of a competitor. 
They couldn't complain to the authorities because their 
rival wasn't selling below cost; he simply was taking a 



152 



• • THE BUSINESS CONSCIENCE • • 

smaller markup. The two angry distributors decided to 
cut off the competitor's source of supply. One hired a 
detective agency to keep a secret watch on deliveries to 
the man's warehouse and secure the order number on 
each incoming carton. The identity of suppliers could be 
learned by forwarding the numbers to the manufacturer. 

One of the two competitors had been wholesaling some 
wallpaper to the price-cutter; these sales were cut off. 
The second competitor, according to subsequent findings 
by the FTC, pressured other dealers to stop doing busi- 
ness with him. 

According to the FTC, the beleaguered competitor 
had to go to extraordinary lengths to maintain a supply 
of wallpaper. On one occasion, the agency said, he had 
to drive his truck to a neighboring state where he bought 
a supply in unmarked cartons from a dealer who de- 
manded payment in cash and refused to supply an 
invoice. Other transactions were similarly cloaked in 
secrecy. 

The FTC ruled that the price-cutter's two competi- 
tors had engaged in an illegal boycott. If a businessman 
acts independently to stop doing business with someone, 
he usually is within his rights. But if he conspires with 
others to eliminate a competitor, he is violating the law. 

You might argue that this is a legal matter having little 
or nothing to do with ethics. But think back to one of 
the first ethical principles you learned in school, or, 
rather, in the schoolyard. Whenever two boys fought 
and a third joined forces with one of the combatants, the 
cry would go up: "Two against one— no fair" I think 



153 



• • THE BUSINESS CONSCIENCE • • 

the same principle applies to the ethics of fair competi- 
tion, just as it is reflected in the laws which protect fair 
competition. The law, after all, tends to mirror the ethics 
and standards of our society. 

The fact that a particular law may prohibit an act that 
is perfectly acceptable in some other country or society 
does not mean that it lacks inherent ethical implications. 
As we have noted before, ethical standards change and, 
by the same token, may vary from one area to another— 
even within the same broad society. 

Piracy is illegal in most countries and I am sure we all 
agree that it is unethical as well. Nevertheless, piracy was 
an acceptable method of increasing the national wealth 
in Elizabethan England. And some of the biggest pirates 
were knighted for their specialized service to the crown. 

Even today, and in this country, we cannot say that 
piracy is dead. A case in point involved the discovery of 
slanting oil wells in East Texas in the spring of 1962. The 
state's attorney general and the Texas Railroad Commis- 
sion, which regulates oil operations, began an inquiry to 
determine how many wells were slanted, beneath the sur- 
face, to pirate oil from neighboring properties. Every 
one of the first twenty-two wells checked was slanted. 
And the attorney general estimated that the piracy might 
involve fifty million dollars. 

This type of operation comes close to the piracy that 
gladdened the heart of Elizabeth the First. Most of the 
pirates in American business, and there are very few, 
forebear the theft of property; they are more apt to pi- 
rate competitive secrets. 



154 



• • THE BUSINESS CONSCIENCE • • 

A spectacular case of commercial espionage occurred 
quite recently in Washington, D.C. The occasion was a 
private meeting of lawyers and business executives to 
discuss an important case pending before the Federal 
Power Commission. The conferees had a common inter- 
est in the FPC proceeding, which involved a natural 
gas pipeline permit, and they talked fully and frankly 
about the points at issue and the legal strategy to be em- 
ployed. Later, they discovered a microphone and radio 
transmitter secreted in the meeting room. The locale was 
a well-known hotel. In a nearby room, police found a 
private detective, a young lady, a radio receiver and a 
tape recorder. 

Fifty years ago, this kind of thing was fairly common, 
although lacking such refinements as electronic eaves- 
dropping. Clarence Randall, writing in the New York 
Times Magazine, has recalled that the steel companies 
once were continuously engaged in subversion, seeking 
the research secrets of competitors. They did their dirty 
work through bribery or by hiring away technicians who 
were willing to bring competitive secrets with them. To- 
day, says Randall, with justifiable pride, technical data is 
openly and freely exchanged in the steel industry. 

Not all industries can make such a claim. For instance, 
we read about mysterious spy systems in the auto indus- 
try, all aimed at uncovering the secrets of new models 
planned by competitors. And there have been recent 
cases involving the piracy of pharmaceutical formulas and 
the theft of valuable oil exploration maps from a major 
petroleum company. 



155 



• • THE BUSINESS CONSCIENCE • • 

Very recently, the Maryland Court of Appeals barred 
a group of former employees of C.E.I.R., Inc., a com- 
puter services firm, from competing with C.E.I.R. for a 
government contract to plan automation of the Social 
Security system. The court said the employees, while 
working for C.E.I.R. under a ninety-day contract with 
the Bureau of Old Age and Survivors Insurance, "were 
able to absorb unique experience and solidify their con- 
tacts with bureau officials" at the expense of their em- 
ployer. It said the men should have told C.E.I.R. that 
they planned to set up their own corporation and bid for 
the automation project. 

The potential problems involved in a possible betrayal 
of corporate secrets must be most acute in the science- 
oriented industries where research is apt to spell the dif- 
ference between profit and loss. Companies in this field 
must protect their seorets— and show a proper regard for 
the secrets of competitors. Especially, they must be care- 
ful to avoid unethical hiring practices. 

International Business Machines Corporation, for one, 
has developed an exacting set of policies to cover the 
hiring of persons who have been associated with com- 
peting firms. And IBM suggests that, whenever anyone 
is hired after working for a competitor, he be written a 
letter along these lines: 

We recognize that during your employment with 
the Blank Company you may have been involved in 
a sensitive and proprietary area of their business and 
had access to confidential information. 



156 



• • THE BUSINESS CONSCIENCE * • 

While we are confident that as a matter of per- 
sonal ethics you would not disclose any of such in- 
formation to us, this will confirm to you that we in 
IBM are not interested in obtaining any such infor- 
mation from you. Accordingly, you should use ex- 
treme caution in your work at IBM not to disclose 
any confidential information about the business or 
affairs of the Blank Company or its future plans or 
products. 

On our part, we will endeavor not to give you 
any assignment which will require you either to use 
or to disclose any such confidential information. If 
you should find at any time that your assignment 
may require you to use or to disclose any such infor- 
mation, you should decline to do so and inform your 
superior of your action. 

IBM had still another problem directly related to the 
ethics of fair competition: bigness. IBM's position in its 
industry is so powerful that it must be very careful not 
to use that power unfairly at the expense of competitors. 
Top management's attitude on this point was stated very 
forcefully by Chairman of the Board Thomas J. Watson, 
Jr. at a 1961 meeting of top executives. Mr. Watson sug- 
gested that IBM employees use "a simple test" to resolve 
problems of competitive ethics in the gray area where 
conscience rather than the law is paramount: 

Suppose that you were a competitor— small, pre- 
cariously financed, without a large support organiza- 



157 



• • THE BUSINESS CONSCIENCE • • 

tion, and without a big reputation in the field— but 
with a good product. How would you feel if the 
big IBM Company took the action which you pro- 
pose to take? Would you regard the IBM Company 
as taking unfair advantage of you? Would you 
consider that the IBM Company was using a sales 
tactic which IBM possessed solely because of its size 
and reputation, and which, therefore, was unavail- 
able to you? 

We must avoid the type of action— even lawful 
action— which irritates, antagonizes and finally goads 
a competitor to action. We simply cannot shoulder 
people around or give the appearance of doing so. 

I have italicized the last sentence because I think it 
could stand, in any organization, as the keystone for 
policies of fair competition. The fair competitor will not 
shove people around. And if he happens to be a giant 
like IBM, he should recall another schoolyard principle: 
"Pick on someone your own size." 

There was a time, not many years ago, when a lot of 
knowledgeable people thought industrial bigness was, 
in itself, immoral. They had before them the examples 
of the now-dead trusts and monopolies in such fields as 
steel, oil, tobacco, copper refining, sugar, rubber, metal 
cans, farm machinery and aluminum. 

Early in this century the president of Yale University, 
a man of conservative bent, predicted that unless the 
trusts were curbed, there would be "an emperor in Wash- 
ington within twenty-five years." And in 1932, Adolf 



158 



• • THE BUSINESS CONSCIENCE • • 

A. Berk, Jr. and Gardiner Means wrote that the two- 
hundred largest industrial corporations had grown so 
fast since 1900 that, if the growth rate continued, they 
would hold between seventy and eighty-five per cent of 
all corporate wealth by 1950. Much more recently, in 
1948, the FTC expressed similar fears in a report to the 
House Judiciary Committee: 

No great stretch of the imagination is required to 
foresee that if nothing is done to check the growth in 
concentration, either the giant corporations will ulti- 
mately take over the country, or the government 
will be impelled to step in and impose some form of 
direct regulation in the public interest. In either 
event, collectivism will have triumphed over free 
enterprise. . . 

None of these fears has proven well founded. How- 
ever, the concern of the FTC was aimed in the right 
direction. The danger is not bigness but concentration 
of too much economic power in too few hands in a par- 
ticular industry. Bigness itself has caused no crisis nor 
paved the way for any emperor. There are more and big- 
ger businesses than there were three decades ago. And 
there are more and bigger small businesses. The relative 
standing of each has changed very little during that time. 

Many of us become emotional about bigness, partic- 
ularly when we see its impact in our own community; 
when we see its effect on small business. Our sympathy 
for a distressed local merchant sometimes blinds us, for 



159 



• • THE BUSINESS CONSCIENCE • • 

example, to the benefits enjoyed by the entire community 
when a big chain store comes to town. 

Without a doubt, the chains have made it unprofitable 
for many small merchants to continue in business. And 
where such companies have used illegal or unethical 
methods to bring this about, they are to be condemned. 
For the most part, however, the modern chain store- 
especially the supermarket— has triumphed by offering 
more variety, quality and economy. In other words, these 
stores have given us the benefits we expect from a pro- 
gressive, competitive economic system. All of us enjoy 
higher living standards as a result. 

I can recall most vividly my own experiences in my 
father's store, which started out as a grocery store but 
evolved into more of a "general" store. I suspect that my 
father made all the mistakes in the book so far as running 
a successful store was concerned, or being prepared to 
meet the competition of modern methods. 

He got off to a bad start, for example, when he chose 
the site for his store. He owned about two acres of land 
a full block away from the main street. The land was 
bought primarily for our home but it was also occupied 
by a large vegetable garden and a stable to accommodate 
a horse and cow. Because he already owned this land, 
which had cost only a few hundred dollars, my father 
built his store on the corner nearest the main street. But 
even then it stood at least three- to four-hundred feet 
away. Because he owned the land, he didn't think far 
enough ahead, or didn't go to the trouble and expense, of 
buying a small footage on the main street. 



160 



• - THE BUSINESS CONSCIENCE • • 

I worked in the store before and after school hours. I 
was usually sweeping out the place by six in the morning. 
In the afternoons, I would run errands or, as I got a little 
older, sometimes drive the delivery wagon or "dray." 

A picture of the store comes clearly to mind. It was 
built in the cheapest way possible and was not at all at- 
tractive. The two front windows even had iron bars over 
them. This was a matter of protection, of course, but 
again no thought was given to appearance or display. 

We handled a general line of groceries, most of them 
stored in bulk. There was a large, open box of crackers 
which quickly went stale, and barrels of pickles and salted 
fish. Later we added a few "dry goods"— clothing and 
hats. Then, a few years later, we built a lean-to at one 
side of the building. This was our meat market. We killed 
our calves and cows and hogs a few hundred feet away 
and we did our own dressing of beef and pork. We'd 
wrestle the carcasses into the store and hang them up. 
There were no screens on the windows and flies were 
everywhere. Very little attention was paid to sanitation. 

There was no hired help. My father used the family 
for that. He would work twelve to fifteen hours a day 
and the rest of us would fit in wherever we could. We 
might be waiting on a customer, selling her a pound of 
liver and then some sugar and pickles, and perhaps she 
would want a straw hat or a shirt. So we would wipe 
our hands on the white apron that we wore and move 
from one place to another. 

We had no real cost system and kept very few books. 
But at least we tried to collect a markup high enough to 



161 



• . THE BUSINESS CONSCIENCE * • 

make sure we made some money. The fact that we did a 
credit business meant that we lost considerable sums. 

All in all, the service was poor, the quality only fair, 
the display and merchandising nonexistent, and the 
volume small. 

I think it was quite typical of stores all over the 
country at that time, and there still are quite a few in 
some small towns and in country places. They serve a 
purpose but they find it difficult to compete. 

If a local man has good contacts, imagination and en- 
ergy, coupled with an ability to buy more or less competi- 
tively, he may be that rare individual who is able to 
compete. In my town, for example, a young man, the 
son of a butcher, saw the competitive situation changing 
over the years and built one of the larger food stores. He 
is doing all right. But he has had to adopt almost all of 
the chain store methods of service, pricing, quality, pro- 
curement, etc. 

The chain store and its local equivalent succeed because 
they observe the basic tenets of good salesmanship. They 
offer courtesy, cleanliness, economy, and a quality and 
variety of goods that people want. 

This is part of the competition of today's life; it is 
part of the competition facing nations in world markets. 
The intensified competition in world trade, from the 
Common Market countries and elsewhere, brings to us 
in the United States a new challenge demanding greater 
efficiency, lower prices, better quality, better merchan- 
dising. We can't take things for granted any more. We 
can't have a country store and expect the neighbors to 



162 



• • THE BUSINESS CONSCIENCE • • 

come in and buy from us because of who we are. We 
must meet competition; we must welcome competition. 
And we must compete fairly— at home and abroad. 

Here in the United States, many ethical problems are 
inspired by distributors— retailers and wholesalers— who 
try to pressure their suppliers into eliminating or re- 
ducing competition at the distribution level. A manufac- 
turer will be urged by a customer to stop doing business 
with a competing customer, to police the competitor's 
prices, or to offer the customer a special price so he can 
undercut the competitor. Most, if not all, of these prac- 
tices are illegal. And they are unethical in our society 
because they strike at the roots of our accepted economic 
system. They violate the basic rules of the game. 

Advertising and promotional allowances are a source 
of recurrent trouble. In order to keep another manufac- 
turer from landing a big order, even big-name manu- 
facturers occasionally will offer a customer a larger allow- 
ance that violates the rules; that is, an allowance greater 
than is offered the customer's competitors. And sellers are 
not alone in abusing the basic principle of fairness embod- 
ied in this legal rule. Certain customers are not above de- 
manding "something extra" in the way of an allowance; 
otherwise, they say, they will take their business else- 
where. It might be difficult for a salesman to refuse if 
all he could say was* that favoritism of this kind is un- 
ethical. Apparently it was altogether too difficult because 
Congress had to give him a stronger answer: it is illegal. 

Closely related to this matter of providing ' 'something 
extra" are questions concerning entertainment and gift- 



163 



• • THE BUSINESS CONSCIENCE • • 

giving in business operations. These can be very serious 
questions inasmuch as even casual and harmless good will 
gestures can be expanded, with the passage of time, until 
they approach outright bribery. 

Clarence Randall has spoken scornfully of those busi- 
nessmen who think "the uninhibited use of high-priced 
food and liquor will move merchandise/' Patently, this 
is a distasteful idea. It seems clear enough that every busi- 
ness firm should have a clear policy regarding the type 
and amount of entertaining that employees may do at 
company expense, or that they may accept. And the 
policy should embrace principles of moderation. While 
it is true that the business lunch— on the expense account- 
is solidly entrenched, and innocent enough in most cases, 
entertainment on a far grander and more dangerous 
scale is sometimes offered— and accepted. 

A good rule of thumb in this area might be to accept 
no entertainment that you would be unwilling to make 
known to all your business associates, including your 
superiors. And, in offering entertainment, you might put 
yourself in the recipient's shoes and try to employ the 
same standard, and also imagine what it would look like 
in tomorrow's newspaper. 

The threat to ethical standards is even greater, at least 
potentially, in the case of gifts offered to customers or 
accepted from suppliers. There are*practical limits to the 
amount of entertainment one man or woman can accept. 
But gift-giving literally can be boundless and completely 
immoral. 

Ironically, some companies recognize the danger in a 



164 



• • THE BUSINESS CONSCIENCE • • 

strange fashion: they prohibit employees from accepting 
the kind of gifts they offer to the employees of other 
firms. 

Several years ago, the National Industrial Conference 
Board questioned 291 manufacturers about their attitudes 
and practices regarding Christmas giving. The majority 
opposed exchanges of business gifts and only a small 
minority argued there was nothing inherently wrong 
with the practice. However, forty-six per cent reported 
they gave gifts to people outside the firm and fifty-nine 
per cent said they allowed employees to accept gifts from 
outside companies. 

One executive commented: "This company believes 
that the practice of giving and receiving business gifts is 
not desirable. However, owing to competitive practices 
our marketing department feels that it is necessary that 
some gifts be given." A company president said: 

Some years ago we did a certain amount of Christ- 
mas giving, but as the years passed and the level of 
gifts increased, both incoming and outgoing, we 
finally concluded that the whole matter was in bad 
taste and therefore have discontinued giving any 
presents, and have requested all suppliers to refrain 
from giving any gifts to our people. 

Like anyone else, we were reluctant to see that a 
pleasant form of greeting or salutation at the holiday 
season had degenerated into a contest of some kind, 
but, since it had, we felt that there was nothing to do 
but face it. We believe that everyone is relieved and 



165 



• • THE BUSINESS CONSCIENCE • • 

happier by the institution of this policy. We are 
pleased with the result and feel strongly that this is 
the proper way to handle the matter. 

It would be fine if everyone followed this man's ex- 
ample; the problem would be entirely eliminated. Bar- 
ring that, however, there are steps that every company 
can take to keep gift-giving within acceptable bounds. 
Again, there should be a company policy of moderation, 
stated plainly enough so everyone in the firm will clearly 
understand it— and be held accountable if he doesn't. One 
solution is to place a modest dollar limit on gifts that may 
be given or received. As an alternative, many companies 
rule out gifts that cannot be consumed or otherwise used 
up within twenty-four hours. The important point is to 
keep business gifts on a tight leash so there will be no 
implication of commercial bribery. 

In entertainment and gift-giving, as in most areas of 
competition, one thing leads to another and the whole 
tends to expand. In unfair competition, one act of unfair- 
ness leads to another, and these lead to reprisals; a vicious 
circle— in every sense of that term— is soon created. 

The provocation to retaliation inherent in certain 
advertising campaigns is close to overwhelming, for 
example. Take the case of the nationally-known manu- 
facturer of synthetic fibers who sponsored a trade paper 
advertisement that heaped scorn on competitors market- 
ing the same fibers, reprocessed. According to a com- 
plaint issued by the FTC, the ad featured a caricature 
of a tramp-like rag picker and suggested the competitors 



166 



• • THE BUSINESS CONSCIENCE • • 

were fast-buck operators, loophole artists, unscrupulous 
merchants, peddlers, solicitors and hawkers of junk fibers. 
According to the FTC, the reprocessed fibers were not 
necessarily inferior. 

In a somewhat similar case, the FTC cracked down 
on the manufacturer of a national brand shaving cream 
for employing television commercials claiming to com- 
pare, visually, the qualities of the brand product with 
"ordinary lather" that actually was an imitation cream 
lacking ingredients vital to a valid comparison. 

An even sorrier example was provided by a prominent 
glass manufacturer who purported to compare, on the 
TV screen, the relative merits of competing brands of 
auto glass. The view through the competing glass was 
notably distorted. But the view through the advertised 
brand was perfect. Millions of television watchers were 
impressed— until the FTC found that scenes supposedly 
photographed through the advertised brand actually were 
filmed through open windows. 

Fortunately, most businessmen understand the cycle 
of self-destruction that is started when they unfairly dis- 
parage competitors or otherwise ignore the rules of fair 
competition. And the majority realize that the continua- 
tion of free enterprise as they know it depends on self- 
restraint and self-policing. The alternative, as we have 
noted many times, is added regulation and control. 



167 



10 

THE EMPLOYER'S 
EXPANDING ROLE 



/Oong before I was born, a Book of Rules was pub- 
/ ^/ lished by my future employer, Marshall Field & 
C?x^ Company of Chicago, to regulate the conduct of 
employees in its big department store on State Street. In 
its own way, this booklet was a pioneering document in 
the history of labor relations in the United States; it was 
one of the first detailed codes of its kind. And it makes 
very interesting reading today— as a telling illustration of 
the way things have changed in the sensitive area of 
labor-management relations since the late 1800's. 

For one thing, the code laid down many "do's and 
don'ts" for employees but said little about the responsi- 
bilities of management. "Respectable and moral associa- 
tions outside of business are expected of every employee," 
was one dictum. And this was another: "The visiting of 



168 



• • THE BUSINESS CONSCIENCE • • 

gambling houses by employees of the house, whether 
through curiosity or the intention of playing, must be 
avoided. Any employee who may frequent such places 
is subject to immediate dismissal." 

Conduct during business hours was regulated much 
more closely. The men who wrote the rules overlooked 
very little, as these excerpts demonstrate: 

We regret that any employee of this house should 
so far forget himself as to deface, in any way, the 
wash room. An immediate dismissal, together with 
any fine the law will allow, will be inflicted upon 
anyone who is detected in abusing any room in the 
store . . . 

Young men employed in this house will refrain 
from lounging or hanging around any of the corners 
of this store. It has been noticed that some have used 
these places as a lounging room and have, by expec- 
torating on the sidewalk and otherwise, given the 
place a very untidy appearance . . . 

Complaint has been received by us that our sales- 
girls sometimes so far forget themselves as to clean 
their finger-nails or perform other small duties of 
the toilet while on duty in their departments. Any 
acts of this kind are entirely inconsistent with our 
rules and with lady-like behavior . . . 

The expense to this house for gas is very large and 
must be curtailed at every possible point. Each em- 
ployee will personally see that no extra gas is burned 
in his neighborhood, and the useless burning of gas 



169 



• • THE BUSINESS CONSCIENCE • • 

will hereafter be considered as an extravagant break- 
ing of the rules . . . 

Much was said about the obligations of employees. But 
management almost so far forgot itself as to ignore its 
own obligations toward the hired help. Aside from offer- 
ing a six per cent discount on purchases made by em- 
ployees, Marshall Field & Company in those days 
proffered few fringe benefits. This was one of the ex- 
ceptions: salesladies who rode bicycles to work were 
permitted to store their vehicles in the employees' lunch- 
room on the fifth floor. 

During my own apprenticeship in the textile industry, 
the emphasis remained on the obligations of employees. 
Indeed, the average employer recognized only one im- 
portant duty toward his workers: to hand them their pay 
on time. A great many businessmen, and perhaps a ma- 
jority, felt that the only legitimate basis for complaints 
from labor was failure to meet the payroll. Otherwise, 
the bosses of those days had a very free hand in dealing 
with the work force. 

Of course, some businessmen did feel an obligation to 
distribute coins to schoolchildren or provide cheap com- 
pany housing for employees. This was paternalism above 
and beyond the call of duty. And only a minority of 
firms conceded that labor had any right to organize and 
bargain collectively on such vital matters as the level of 
wages. 

Today, quite the contrary, business rarely evidences a 
greater sense of social responsibility than in dealings 



170 



• • THE BUSINESS CONSCIENCE * • 

with employees. The roster of items open to negotiation 
lengthens year by year. I think it is even fair to say that, 
at the present time, nothing affecting the interests of 
labor, even indirectly, is wholly outside the scope of 
labor-management discussion. 

There have been many reasons for the changes of atti- 
tudes and practices that have evolved over many decades. 
But perhaps the most potent factor was the force of 
public opinion. As evils became apparent, the people de- 
manded reforms. And business had the choice of 
changing its ways or having change dictated through 
government intervention. At the same time, it was not 
entirely a case of businessmen being backed into a corner 
and being forced to change. Many employers developed, 
on their own, a broader and more sensitive understanding 
of their social responsibilities. This trend was particularly 
marked once professional managers took over the direc- 
tion of publicly-owned corporations from the old owner- 
managers. 

Two incidents that occured in 1911 illustrate the 
varied approaches to progress in labor relations. In the 
spring of that year, fire broke out in the loft factory of 
the Triangle Shirtwaist Company in New York City and 
146 trapped employees were killed. Public opinion was 
outraged; the state's labor laws were overhauled and 
strengthened; safety codes were tightened. In that same 
year, the absentee president of Hart, Schaffner & Marx, 
the Chicago suitmaker, was confronted during a labor 
dispute with convincing evidence that his firm had been 
mistreating employees. Stunned by the revelations, the 



171 



• • THE BUSINESS CONSCIENCE • • 

executive adopted a new attitude toward his workers— 
and made sure that his supervisors did the same. 

In my own business career, one of the first signs I saw 
of an awakening social conscience on the part of my em- 
ployer was a decision to conduct night classes for em- 
ployees. This was one of my first assignments and, for 
about ten years, I was a teacher by night and an aspiring 
executive by day. 

It was a very rewarding experience. Certainly it was 
one of the great thrills of my life to work with mill hands, 
many in their forties or fifties, and teach them to read 
and write. The light that came into their eyes once they 
were able to struggle through a paragraph of type pro- 
vided a psychic income difficult to match. 

One of our night school programs involved an attempt 
to give the mill supervisors, most of whom had little or 
no formal education, a basic understanding of the Ameri- 
can economic system. These men came to the class so 
poorly equipped, educationally, that none of the standard 
texts could be used. We had to write our own, on a very 
elemental level. 

This was an ambitious undertaking, and an important 
one, because, without some grasp of economics, it is very 
difficult to act intelligently as a voting citizen. Economic 
issues are among the most difficult and challenging. To 
meet them successfully is the more difficult when the 
electorate is uninformed. 

I think this is borne out by one of the early experiments 
in "industrial democracy" attempted many years ago by 
the president of Dan River Mills at Danville, Virginia, 



172 



• • THE BUSINESS CONSCIENCE • • 

just across the state line from my home in North Caro- 
lina. Mr. Fitzgerald, the president, was an able and dedi- 
cated man of great idealism. He tried to fit his many 
workers into the management of his large textile organi- 
zation. He had them form a house of representatives and 
a senate, in which they could debate company policy. 
And he set up a profit-sharing arrangement. It was a 
noble idea but it failed. And I think it failed because his 
workers did not have sufficient grasp of elemental eco- 
nomics to appreciate what their employer was trying to 
do. They were almost as suspicious of Mr. Fitzgerald as 
were workers in other companies where management 
took a tough attitude. 

As I was given additional responsibilities in our firm 
in the late 1920's and early 1930's, I joined with some of 
my colleagues in trying to develop support for small re- 
forms in our relations with labor. I say "small" because 
they seem so under present conditions; they were con- 
sidered quite large at the time and won for those of us 
who supported them a reputation as "Young Turks." 

One thing that troubled us was the antique method of 
making deductions from the pay of mill workers. It was 
not unusual for the company to make sixteen to eighteen 
separate deductions from a single pay envelope. In one 
instance, a mill manager who was an enthusiastic church 
leader even made deductions for church dues. After 
much argument, it was agreed that deductions would be 
limited to those required by law. 

Another of our campaigns centered around the 1,600 
houses owned by the company. We were furnishing 



173 



• • THE BUSINESS CONSCIENCE • • 

houses to workers at twenty-five cents a room per week, 
which meant about a dollar a week for the average cot- 
tage. I argued for higher wages and a room rent of fifty 
cents— with the extra rent money to be spent in equip- 
ping the homes with running water and inside toilets. 
Also, I wanted to board up the underpinnings of each 
cottage, so they wouldn't stand up on stilts. 

When I became general manager of the mills, we were 
able to begin the renovation program, financed through 
higher rents. But we looked upon this as only a beginning. 
It was our hope to sell the houses to the workers, believ- 
ing this would increase their sense of self-respect and 
well being and give them a greater incentive to become 
active in civic affairs. This, too, was done. Each house 
was valued by an outside appraiser and the worker-oc- 
cupant was given priority to buy it for half the appraised 
value. As I recall the figures, the average house sold for 
about $800, on easy terms. More than ninety per cent of 
the occupants accepted the offer and, ten or fifteen years 
later, discovered that their properties were worth five 
times as much. 

We were not always so successful, however. I remem- 
ber that during the early years of the Depression, when 
we were paying about twenty cents an hour for common 
labor, one of our officials came down from New York 
and announced: "We are losing money and you must cut 
wages to 12 ! /2 cents an hour." Many of our workers al- 
ready had been laid off, because of the economic disaster 
that had befallen the country, and we felt that this sharp 
wage cut would be ruinous to the local economy. Head- 



174 



• • THE BUSINESS CONSCIENCE * • 

quarters wouldn't accept any argument, however, so we 
came up with a proposal to ease the impact: Why not 
hire some of the unemployed to build sidewalks in the 
mill town and, in that fashion, reduce idleness, increase 
purchasing power, and accomplish a badly needed public 
works project? We were turned down because the pro- 
gram was "too expensive"— $6,000 or $8,000, as I recall. 

The philosophy then was "cut-cut-cut." No thought 
was given to investing in new, more productive ma- 
chinery; to doing anything to bolster community mo- 
rale. Neither was there ever any discussion of whether 
we were taking the right or the socially responsible 
course. The accountants were in charge and they couldn't 
see beyond the columns of unpleasant figures. 

Ours was not an organized industry in those days, nor 
were most others of equal or greater importance. The 
emergence of big labor was spurred, in fact, by the very 
kind of Depression attitude on management's part that I 
have described. Public opinion was not pleased with this 
attitude and, through Congress, made itself felt. The 
most far-reaching of all developments affecting em- 
ployer-employee dealings came in 1935 with passage of 
the National Labor Relations Act— the Wagner Act. 
This statute upheld the right of workers to join labor 
organizations and to bargain collectively through repre- 
sentatives of their own choosing. It also defined unfair 
labor practices on the part of employers and established 
a new National Labor Relations Board which had two 
principal functions: to supervise representational elections 
in industry, and to issue cease and desist orders when it 



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• • THE BUSINESS CONSCIENCE • • 

found management engaging in unfair labor practices. 
With this law to back them up, labor unions set out to 
organize on an unprecedented scale, concentrating first 
on such giant industries as auto and steel. So recently and 
quickly did this trend develop that it is somewhat difficult 
today to realize that the steel industry was not fully or- 
ganized until 1941. 

But even today, when the rights of labor have the force 
of law and management approaches labor relations with 
a new and more healthy attitude, there are periodic out- 
breaks of bitter labor-management strife. Some firms, 
albeit a small minority, still hire labor spies and strike- 
breaking thugs; some connive with crooked unions to 
keep honest unions out of their plants. By the same token, 
certain unions still resort to the use of dynamite and 
goons; and some wink at unauthorized wildcat strikes or 
tie up production during jurisdictional disputes entirely 
divorced from relations with management. 

I cannot believe that continued strife, even on a small 
scale, is inevitable. Surely there will be disputes and 
strikes. But there is no excuse for bitterness and violence 
if both sides approach common problems with the will 
to find common ground and a determination to act fairly 
toward each other. It is only when recalcitrants on both 
sides occasionally come to the fore, ignoring the prin- 
ciples of honorable dealing, that we have trouble. I was 
caught in the middle of such a situation while serving as 
governor of North Carolina. 

By far the toughest problem I faced during six years 
as governor was a widely publicized strike at the textile 



176 



• • THE BUSINESS CONSCIENCE • • 

mill in the town of Henderson. This mill had a long rec- 
ord of good relations with the union, until management 
refused to renew a contract that contained an arbitration 
clause. The union, unwilling to accept a contract inferior 
to the one in force earlier, went on strike. Management 
attempted to continue operations with newly-hired 
workers and nonstrikers. Violence erupted. 

Because public opinion demanded action, I made a 
personal effort to get the parties together even though 
mediation services already were working on the case. 
My first effort was unsuccessful. One big stumbling block 
was the fact that the two union leaders who participated 
were jealous, or afraid, of each other. Neither would 
make a commitment. 

A second effort was equally disappointing. An agree- 
ment was achieved, and actually signed. But the settle- 
ment fell apart when management belatedly revealed that 
it could offer union members fewer jobs than the sev- 
eral hundred which had been indicated during the negoti- 
ations. Management had withheld information vital to 
the achievement of an enduring settlement. It was, I think, 
very similar to the situation that pertained in the 1962 
steel negotiations when the steel industry welcomed gov- 
ernment efforts to encourage moderate union demands 
without giving any hint that prices might be increased. 

In all labor disputes, both management and labor have 
a duty to bargain in good faith and put their cards on the 
table; there should be no jokers up the sleeve. And gov- 
ernment has a duty to preserve law and order when 
emotions get out of hand. 



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• • THE BUSINESS CONSCIENCE • - 

After the Henderson agreement was scuttled, new vio- 
lence broke out and I ordered the state police to keep 
order. For this I was condemned by both sides. The union 
argued that the state government should close up the 
mill, and my refusal to do so was branded as a sign of 
management bias. On the other hand, the mill owners and 
many other industrialists in the state thought I was being 
soft with the union; that I should call out the National 
Guard to insure a better job of law enforcement. 
Actually, I had only one point of view, and one which 
I believe should be applied by government officials in all 
labor disputes: I felt that the law must be obeyed and 
that neither side could take the law into its own hands. 

It was a long and bitter struggle and, in the end, I did 
have to send in units of the Guard to control strikers who 
had become desperate as they saw their jobs vanishing. 
Eventually, a number of union leaders were convicted of 
conspiracy to dynamite property and they served prison 
terms, after their case went all the way to the Supreme 
Court of the United States. 

I think one important lesson pointed up by this strug- 
gle was the failure of local law enforcement officers and 
certain local and county officials to do their sworn duty. 
We tried to impress upon these people that they had an 
overriding obligation to maintain law and order but, in 
many cases, they simply shrugged their shoulders, saying, 
"There's nothing we can do." 

The truth is that they wanted to be popular; they did 
not want to take a stand; they were eager to pass the buck 
to the state. And by the time the state was forced to in- 



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• • THE BUSINESS CONSCIENCE • - 

tervene, violence had spread to the point where it was 
very difficult to control. 

This is a problem that exists in many guises in this 
nation and all nations. People at the local level fail to 
carry out their obligations and responsibilities, fail to de- 
fend the law, fail to build their own good schools, fail to 
create a climate that attracts prospering industry; fail, as 
individuals, to do their job. Localities and states abdicate 
their responsibilities and transfer the burden to the fed- 
eral government— then complain about centralization of 
power in Washington. The chief fault is with ourselves. 
We do not exercise leadership down the line. If manage- 
ment had done a proper job of labor relations in the 
decades past, it would have no cause to argue now that 
the law is too hard on management and too easy on 
unions; there wouldn't have been any laws because there 
would have been no need. 

Fortunately, labor disputes of the sort that put Hender- 
son in the headlines are increasingly rare. More often, 
management and labor cooperate in areas that would have 
been far outside the scope of their negotiations just a few 
years ago. In fact, many managements try to establish a 
rapport in their dealings with organized labor that goes 
well beyond contract minimums. As potentially trouble- 
some situations arise, responsible managers look at them 
from the standpoint of fairness and justice; not from the 
standpoint of how little they can do under the terms of 
their contract with the union. 

In forward-looking firms, management tries to stimu- 
late a general and continuing exchange of views with 



179 



• • THE BUSINESS CONSCIENCE • * 

employees at all levels. This enables the company to be 
aware of the gripes or problems down the line, and if 
handled successfully, it gives labor a sense of responsi- 
bility. 

In many areas that formerly were considered wholly 
within the scope of management policy, labor and man- 
agement are working together and making notable pro- 
gress in the direction of doing what is fair and just. An 
example is the field of fair employment practices: the 
elimination of old hiring barriers based on race, religion, 
age or sex. A great many companies have been changing 
their attitudes on this subject, and so have many unions 
which have practiced discrimination on their own ac- 
count. In some communities, these problems will not be 
solved with the snap of a finger— but they will be solved, 
because men of good will are moving to solve them. 

Socially conscious management also is giving greater 
recognition to the problems involved in the replacement 
of inefficient plants. In many cases, the simplest course 
seems to be to pull up stakes and start fresh in the next 
county or the next state or in sections where industriali- 
zation is just getting started. Even so, fewer and fewer 
businessmen will pull out of a community and damage 
the local economy without giving great thought to the 
implications of their decision— and to ways in which they 
can ease the impact. 

Particularly in recent years, quite a few firms that 
move to new locations offer to move their employees 
with them. Others work with labor unions or with local 
and state officials to train laid-off employees in new skills 



180 



• • THE BUSINESS CONSCIENCE - • 

needed by other industries in the area. And many, after 
canvassing all the alternatives, decide not to move. 

One could cite many examples of accommodations and 
compromises made by responsible firms that have felt 
compelled to move out of antiquated, unproductive plants 
and into new facilities in other locations. One such inci- 
dent occurred when the Textron Company announced 
it would close its mills in Nashua, New Hampshire, and 
lay off 3,600 workers. Business and civic leaders per- 
suaded Textron to keep one unit open, thus assuring con- 
tinued employment for one-third of the company's 
Nashua work force. These same leaders, most of them 
small businessmen, then put up cash to finance an am- 
bitious campaign to attract new industry. Within five 
years, they could point to thirty-six new firms with a 
payroll that more than offset the loss of Textron. 

More recently, the Ford Motor Company closed a 
fifty-year-old assembly plant at Chester, Pennslvania, in 
order to start fresh at Mahwah, New Jersey. The 1,243 
production workers at Chester were offered jobs at the 
new plant but few accepted; it is difficult for a home- 
owner or a longtime resident with family ties to pick up 
and move on short notice. The state of Pennsylvania sent 
in a task force and, with the cooperation of Ford and the 
United Auto Workers, helped establish a notably suc- 
cessful retraining program for many of the Ford em- 
ployees. Eighty per cent of the graduates of most 
retraining courses found other jobs requiring their new 
skills. In some instances, placements hit one hundred 
per cent. Parenthetically, I think it's worth noting that 



181 



• • THE BUSINESS CONSCIENCE • • 

courses were given only in those skills that were in short 
supply in the area. Also, workers could not take a course 
unless they passed a test indicating an aptitude for the 
work that would be involved. Some earlier retraining 
programs elsewhere were failures because they taught 
unneeded skills or tried to accommodate those incapable 
of mastering the techniques required. 

Another interesting aspect of the Ford case, inciden- 
tally, involved the sale of the abandoned plant. The best 
offer came from a large company that wanted to use the 
property as a warehouse for paper products— an operation 
that would involve few jobs. Ford did not feel it could 
accept less than the best offer. At the same time, the 
company wanted to see the plant occupied by someone 
who would hire a substantial work force. Therefore, 
Ford contacted the second highest bidder— the Reynolds 
Metals Company— and urged Reynolds to match the high 
bid. Reynolds agreed and moved in. 

In another case, the Kroger Company decided to aban- 
don a large warehouse at Carbondale, Illinois, in order to 
centralize its distribution facilities at Memphis, Tennessee. 
Because the plant occupied property donated by the com- 
munity, Kroger decided to deed both land and plant back 
to the city without charge— even though it had paid 
handsomely for the building. By coincidence, this same 
plant was the focal point for the first industrial loan 
granted by the Area Redevelopment Administration after 
that agency was established by Congress in 1961. The 
ARA advanced $500,000 to the Carbondale Industrial 
Development Corporation so it could renovate the ware- 



182 



• • THE BUSINESS CONSCIENCE • • 

house for use by an expanding, science-oriented firm that 
moved in and hired five hundred workers. 

The Bridgeport Brass Company is another firm that did 
its best to ease the impact when it moved, not long ago, 
out of a plant in Michigan that was leased from the fed- 
eral government. The company went all out to line up a 
new tenant for the facilities, assigning two top executives 
to the job. And the government cooperated by passing 
over the highest bidder— another warehouse operator— in 
order to get a tenant with a larger payroll. The com- 
munity was so impressed by Bridgeport's sense of respon- 
sibility that company officials were given a public banquet 
before they left town. 

Of course, a departing company cannot always, or 
even in most cases, offset the impact of its move single- 
handed. This usually requires the cooperation of local 
citizens, union leaders and government— federal, state or 
local. In this connection, I would like to emphasize the 
role that can be played by local business and professional 
men in attracting and retaining good employers. 

In a great many cases, plants move because they no 
longer claim the active interest of the community or its 
officials. Many years ago, a friend of mine shut down 
three old and unprofitable plants in a large city in the 
East. And in none of the three instances did the commu- 
nity—or even the employees— show the slightest interest 
in trying to work with the managers to salvage the op- 
erations. 

The small businessman can do a great deal to help his 
community and its work force by taking an active part 



183 



• • THE BUSINESS CONSCIENCE * • 

in community development. This also gives him the op- 
portunity to help his own business grow and prosper as 
his community prospers. I will mention a single example 
of what can be done when a local businessman shows 
initiative and imagination. This case, quite typical of 
many others, was cited to me by William L. Batt Jr. the 
administrator of the ARA. 

After World War II, the city of San Jose, California, 
faced a rapidly expanding population that threatened to 
cause mass unemployment because the local economy 
depended on a single crop— prunes— that offered only 
seasonal employment. Members of the Chamber of Com- 
merce put up $60,000 to advertise the industrial advan- 
tages of the San Jose valley. Many prospects were 
attracted but the city was ill-prepared to do the sales job 
required to land new industry. 

As Pete Pasetta, a local builder, later told Mr. Batt: 
"We'd drive the president of some big company to a 
likely-looking site. When he asked the price of it, we 
didn't know. When he inquired about sewers, we said 
we'd talk to city hall. When he wanted to know about 
sidings, we told him we'd take it up with the railroad. 
He'd get disgusted and go someplace else where they 
knew the score." 

Mr. Pasetta wasn't happy about this situation and he 
decided to do something about it. He bought a 120-acre 
broccoli farm, persuaded the city to service it with water 
pipes and sewage lines, then paid from his own pocket 
to have railroad tracks run through the property. In 
short, he developed his own industrial site. In a few 



184 



• • THE BUSINESS CONSCIENCE • • 

months, every acre was sold to new industries and Mr. 
Pasetta bought an additional three-hundred acres. It 
wasn't long before fifty companies occupied the farm- 
lands. Their work force totaled 3,000 and their payroll 
$15,000,000. San Jose was on its way as an industrial 
center. In 1953, the Ford Motor Company took over a 
nearby tract and built a $100,000,000 plant. Ford's 
action, which more than doubled the payroll, probably 
wouldn't have happened but for the initiative and imagi- 
nation of Mr. Pasetta. 

Attracting new industry to North Carolina was per- 
haps my principal program as governor. I undertook the 
task because the state had a low per capita income and 
was, I felt, overly dependent on agriculture— particularly 
the tobacco crop. By attracting new industry, I do not 
mean that we enticed plants to move from other states 
to North Carolina. Everywhere we went in search of 
new business, we emphasized that our appeal was directed 
at companies planning to expand or reach for new 
markets. We stated flatly, and repeatedly, that we not 
only would avoid asking anyone to move— we were 
against the idea. And our first action in each city was to 
contact local officials, and the governor of the state, to 
explain our program. 

At this point, I would like to discuss what is perhaps 
the most perplexing current problem involving labor re- 
lations—and one that is likely to become more thorny 
before it is solved. I refer to technological progress, 
commonly labeled automation. 

To begin with, I'd like to repeat a story that I read re- 



185 



• . THE BUSINESS CONSCIENCE • • 

cently in a speech by I. John Billera, executive vice presi- 
dent of U.S. Industries, Inc. Mr. Billera said it was an 
old story but I hadn't heard it before— and I think it bears 
repeating in any case. 

Many years ago, two sidewalk superintendents, in- 
specting an excavation, were watching one of the first 
steam shovels scoop out the foundation for a new build- 
ing. 

"The shame of it," said one. "That machine, with one 
man in the cab, is doing the work of 100 men with 
shovels." 

"Or," said his friend, "of 1,000 men with spoons." 

As this story indicates, there is a woeful lack of solid 
information about the impact of automation, past, present 
or future. You can argue with equal fervor that automa- 
tion represents either a boon or a disaster. 

I cannot believe that any development that promises 
to transfer burdensome chores from men to machines 
will be anything but a blessing in the long run. Certainly, 
it has always been so in the past. I do believe, however, 
that the blessing inevitably will be accompanied by 
knotty problems of dealing with displaced labor. At the 
same time, I am convinced that these are problems that 
can and will be surmounted if we use our heads and fol- 
low basic ethical precepts of being fair with each other. 

Automation problems were the subject of a special 
report in 1962 by the President's Advisory Committee 
on Labor-Management Policy, a group alternately chair- 
maned by the Secretary of Labor and the Secretary of 



186 



• * THE BUSINESS CONSCIENCE • • 

Commerce. The Committee found that three central 
points emerged from its study: 

First, automation and technological progress are 
essential to the general welfare, the economic 
strength, and the defense of the nation. 

Second, this progress can and must be achieved 
without the sacrifice of human values and without 
inequitable cost in terms of individual interests. 

Third, the achievement of maximum technologi- 
cal development with adequate safeguards against 
economic injury to individuals depends upon a com- 
bination of private and governmental action, con- 
sonant with the principles of the free society. 

Companies adopting automated procedures obviously 
expect to reap substantial benefits in increased produc- 
tivity or they would not make the large investments re- 
quired. But they should not overlook the interests of 
their workers, many of whom will be longtime employees 
who have contributed importantly to the past successes 
of the company. There is a moral obligation here, first to 
the individuals directly affected and, second, to society 
as a whole which should not be needlessly burdened with 
sustaining displaced workers through government pro- 
grams if the job can be done privately. 

Of course, a company can wash its hands of the prob- 
lem and say, in effect, u let Washington handle it." That 
is the easy way— a way so easy, in fact, that it disregards 
essential moral considerations. I would hope that no 



187 



• • THE BUSINESS CONSCIENCE • • 

employer would take this attitude until, and unless, he 
was fully satisfied that he could not handle the problem 
himself, or in collaboration with union or community 
officials. Unless management makes the effort, we cer- 
tainly shall add to the bureaucracy. And some additions 
doubtless will be necessary in any event. 

The Labor-Management Advisory Committee made a 
number of suggestions about avenues to follow in achiev- 
ing maximum technological progress with a minimum of 
individual hardship. 

In broad terms, the Committee urged "acceptance by 
management of responsibility for taking measures, to the 
maximum extent practicable, for lessening the impact of 
technological change." And it specifically suggested that 
management plan well ahead, report its intention to the 
employees involved, cooperate with employee represent- 
atives and public employment services to meet job prob- 
lems, and adjust the timing of changes, to the extent 
possible, "so that potential unemployment will be 
cushioned by expected expansion of operations and 
normal attrition in the work force (through separations 
resulting from retirements, quits, and so forth)." 

It also was suggested that "private employers and 
unions faced with automation or technological changes 
should make every reasonable effort to enable workers 
who are being displaced, and who need to be retrained, 
to qualify for new jobs available with the same employer, 
and to enjoy a means of support while so engaged." 

Indeed, this will be the greatest challenge: to give men 
with obsolete skills and vanished jobs new hope for a 



188 



• • THE BUSINESS CONSCIENCE * • 

productive life. This is a challenge worthy of the best 
that is in us— and it may be the most important challenge 
as the employer's role continues to expand in the years 
ahead. 

Quite properly, several firms that are leaders in the 
manufacturing of automation machinery are assuming 
leadership in facing up to the challenge ahead. Inter- 
national Business Machines Corporation, for one, is fi- 
nancing a research project by the National Education 
Association to unravel the educational implications of 
automation. In short, IBM wants to find out how to train 
the future work force in the skills demanded by increased 
automation, and how to prepare the present labor force 
for a place in the industrial environment of tomorrow. 

U.S. Industries, in cooperation with the International 
Association of Machinists, also is seeking ways to alleviate 
the effects of technological progress on labor. This firm's 
program is quite unique. U.S. Industries and the union 
have set up the Foundation on Automation and Employ- 
ment, financed by "dues" assessed against the lease or 
sale of each automated machine produced by the com- 
pany. Dues per machine vary from $25 to $1,000. 

Of course, IBM and U.S. Industries are looking after 
their own best interests in undertaking these pioneering 
programs. They know they will be able to sell or lease 
more automated machines if they can find a way to lessen 
the resulting impact. But there is nothing shameful about 
this. Quite the contrary, it represents a commendable 
point of view. These companies aren't waiting for the 
federal government— pressured by public opinion— to reg- 



189 



• • THE BUSINESS CONSCIENCE • • 

ulate automation or otherwise expand the sphere of gov- 
ernment activities. They are trying to meet their own 
responsibilities and lessen the need for government inter- 
vention. 

As in most cases where business acts with a sense of 
ethical and social responsibility, these firms— and others 
like them— will discover that good ethics is good business. 



190 



n 

BUSINESS 
GOES AMOAD 



s~\ /} any Americans were shocked to read, in the 
( 1/ 1/ 1 summer of 1962, about the deportation from 
^ / I L t he Philippines of a U.S. businessman officially 
described as a menace to state security and a participant 
in massive corruption. Our shock was insignificant, how- 
ever, when contrasted with the indignation the episode 
caused in the Philippine republic. The anger there rep- 
resented a serious blow to our entire business community, 
to our country, and to our foreign policy objectives. Be- 
cause of the actions of a single American citizen, a people 
whose friendship we value probably questioned the sin- 
cerity of our good will and our self-proclaimed attach- 
ment to high-minded principles. One American who 
fails to meet the ethical responsibilities of a U.S. business- 
man operating on foreign soil probably does as much 



191 



• • THE BUSINESS CONSCIENCE • • 

damage to our cause as any army of communist agents. 

According to press reports, the errant American, Harry 
S. Stonehill, went to the Philippines as a G.L in World 
War II and remained there to build a multi-million-dollar 
business empire embracing tobacco, oil, glass and real 
estate interests. A powerful figure, Mr. Stonehill was cut 
down to size by Diosdado Macapagal, the new reform 
president of the islands. Mr. Macapagel charged that Mr. 
Stonehill had "established a network of corruption reach- 
ing practically to every high government office." He said 
he had proof that as many as one hundred officials were 
on a "secret payroll" of the Stonehill enterprises. A De- 
portation Board ruled that Mr. Stonehill was guilty of 
bribery, economic sabotage, violation of banking laws, 
blackmail and tax evasion. 

Although Mr. Stonehill was an individual acting for 
himself, his banishment was a sad event for the United 
States and all its citizens. This was so because there is a 
natural tendency in most countries to judge the citizens 
of another by examples of bad performance rather than 
good. Missteps and failures of a kind far less serious than 
those attributed to Mr. Stonehill are given inordinate 
publicity; they provide the justification for unfavorable 
and discriminatory treatment. Mr. Stonehill seems to have 
overlooked this side of the coin; he apparently did not 
appreciate the fact that he was regarded as a represent- 
ative of the entire American business community, 
whether or not he deserved the role. 

Developing countries like the Philippines attract two 



192 



• • THE BUSINESS CONSCIENCE • • 

kinds of foreign businessmen: the get-rich-quick pro- 
moters and those who want to make an honest contribu- 
tion. Mr. Stonehill may have been a Jekyll-and-Hyde 
combination of both types. In any case, he issued a state- 
ment of self-justification on the day of his deportation: 

"I have come to love the country during the seventeen 
years that I have stayed here ... I have found friends 
among the people ... I shall treasure this the rest of my 
life. In all sincerity, I can state that I modestly contributed 
to the well-being and economic development of this 
country; in more specific terms, to the employment of 
thousands of Filipinos." 

And yet, assuming the truth of the bribery and other 
charges, Mr. Stonehill destroyed the value of whatever 
positive contributions he made to the islands. Whatever 
good he did was overwhelmed by the ensuing scandal. 

I'm sure we would all prefer to believe there are very 
few Harry Stonehills in our business community; that 
few bribers threaten to visit upon our country the same 
opprobrium that Mr. Stonehill inspired. Personally, I 
doubt that bribery plays a major part in the activities of 
American firms abroad, though even a small part would 
be significant. At the same time, I am mindful that an 
observer as wise and knowledgeable as Clarence Randall, 
former head of Inland Steel Co. of Chicago, has said that 
widespread bribery of officials of developing countries is 
"a stain on the conscience of industry which needs to be 
removed, and removed soon." Writing in the New York 
Times Magazine, Mr. Randall reported: 



193 



• • THE BUSINESS CONSCIENCE • - 

In the course of my government service, I visited 
many of these areas. I know whereof I speak, and I 
say that there are many otherwise respectable com- 
panies which still buy their way in when it comes 
to securing a mineral concession or establishing an 
operation in a remote part of the world. 

This must stop, and it can only be accomplished 
by self-discipline. Surprisingly enough, I happen to 
have grave doubts whether it is a violation of any 
present federal law for an American citizen to cor- 
rupt an officer of a foreign government, but that 
fact merely highlights the challenge to our business 
leadership. I reject the argument that other nations 
are doing it, and therefore we must do it if we are 
to compete. Better to lose the business than to deny 
our heritage. The entire prestige of our country, 
and its ability to preserve our way of life in the 
world, is at stake. These precious values must not 
be jeopardized by individual dishonor. 

. . . What could be more tragic than for us to lose 
an air base that is vital to our national security be- 
cause of moral turpitude on the part of American 
business? What will be our position when some dem- 
agogue from the desert calls his people to arms with 
the cry, "Drive the filthy Americans into the sea. 
We have been robbed of our ancient heritage"? 

Of course, the corruption of public servants abroad is 
not the only evil that American businessmen must avoid. 
There can be an equally strong temptation to deliver 



194 



• • THE BUSINESS CONSCIENCE • • 

shoddy or obsolete merchandise to unsophisticated for- 
eign customers who aren't sure what they're buying, or 
what they need. This is a particular specialty of the get- 
rich-quick artists who flock to the underdeveloped coun- 
tries where they capitalize on ignorance and, in effect, 
"sell the Brooklyn Bridge." 

We learned recently in the Department of Commerce 
about an American firm that was trying to find a foreign 
buyer for frozen cakes condemned by the U.S. Food and 
Drug Administration as unfit for human consumption. 
Unfortunately, our law permits this, so long as a sale 
complies with the law of the buying country. And con- 
sumer protection statutes in many developing countries 
are rudimentary or seldom enforced. 

I am told that the shipment of substandard merchan- 
dise to Europe and other industrialized areas is rare; buy- 
ers there are sophisticated and can turn to many alternate 
sources of supply. It is a disturbing fact, however, that 
such shipments were made following World War II, 
when supplies of many items were scarce. This seems to 
suggest there is a fringe element in American business 
that will show no conscience about chiseling foreign cus- 
tomers whenever the opportunity is present. I know of 
one such case from my own experience in the textile in- 
dustry. 

During the early months of World War II, our blanket 
mill received orders from the French government, which 
needed millions of blankets. Because the need was urgent, 
the specifications were not very exacting. And because 
these were to be cheap blankets, going to a foreign cus- 



195 



• • THE BUSINESS CONSCIENCE • • 

tomer, one of our officials at the mill decided on his own 
to substitute a wool mix inferior to the one specified; he 
figured the goods were so cheap to start with that no one 
would discover the difference. Fortunately, we learned 
about this before it had gone too far. We threw aside the 
inferior blankets and manufactured new ones that lived 
up to our contract. 

Another source of difficulty is the use of dual exchange 
rates by some countries, including a number in Latin 
America. To husband needed foreign exchange, certain 
countries prescribe one exchange rate for essential im- 
ports and a less favorable rate for luxuries and nonessen- 
tials. Some American exporters try to offset the impact 
of the unfavorable rate by overpricing goods sold to these 
countries. This practice, wherever it exists, can only give 
American enterprise a black eye. I think it is significant 
that, according to reports received by the Department of 
Commerce, this practice of overpricing is less prevalent 
among our European competitors who have a larger stake 
in world trade, compared to their domestic economies. 
Apparently our more experienced competitors feel a 
stronger compulsion to protect their trade because they 
know it means a lot to the prosperity of their country. 
Our own balance of payments problem— quite apart from 
ethical considerations and domestic prosperity— should 
prompt the same concern here. 

Because I may have painted a sordid picture, I want to 
emphasize that I have been writing about an unscrupu- 
lous, but worrisome minority. And I would point out 



196 



• - THE BUSINESS CONSCIENCE • • 

that, in many areas, the American businessman quite 
often is more scrupulous than his foreign competitors. 

For example, U.S. businessmen are likely to maintain 
very high standards in observing tax and labor laws in 
countries where they operate; their compliance, in many 
cases, puts local businessmen to shame. This reflects, I 
am sure, the vigorous enforcement of comparable laws 
in the United States. 

Quite instinctively, and to their credit, American firms 
are inclined to avoid doing certain things abroad which 
are legal there, but run counter to our own statutes de- 
signed to protect competition. In many instances, such 
hesitancy reflects ethical rather than legal misgivings. 

As an example, one of our commercial attaches in Aus- 
tralia was approached by a local greeting card distributor 
who was trying to negotiate a licensing agreement with 
an American manufacturer. The Australian reported the 
American firm was reluctant to sign because its cards 
would be subject to price-fixing agreements in Australia. 
Said the Australian: "Go back and tell your company 
that this is the way we do business here; it is perfectly 
legal." The man who told me this story did not know 
the final decision of the American firm. 

Another American company faced an unusual problem 
when it opened an operation in the Union of South 
Africa. It discovered that Negro employees would be 
charged higher life insurance premiums than whites un- 
der the company's insurance program. The U.S. firm re- 
fused to accept this situation and, in the end, the same 
rates were obtained for employees of all races. 



197 



• • THE BUSINESS CONSCIENCE • • 

Conduct of this sort— indeed, proper conduct in all 
areas of foreign operations— can only redound to the 
credit of American enterprise and the nation it repre- 
sents. Sometimes there may seem to be scant profit in 
maintaining higher standards than are observed locally. 
In the long run, however, the benefits are certain to be 
great. 

I say this because businessmen in scores of countries 
have been demonstrating the same concern about pro- 
moting high standards that is evident in the United States. 
This is an international trend that provides the American 
with an opportunity to show leadership around the globe. 
It provides a golden chance to confound the communists 
and all our detractors by proving the moral as well as 
material worth of our economic system. 

The citizen of a country like Nigeria may value the 
material contribution we can make to the development 
of his country. But he will loudly cry "foul" and forget 
the good we do if he finds that our moral standards are 
sacrificed in favor of material expediency. In that case, 
what we thought of as good business would suddenly be- 
come very bad business. 

Growing international concern about business ethics is 
mirrored in the spread of our Better Business Bureaus, 
and similar organizations, to other lands. Unfortunately, 
however, our businessmen sometimes neglect the oppor- 
tunity to promote developments of this kind. 

At the golden anniversary meeting of the Better Busi- 
ness Bureaus in 1962, one speaker was Senor Jose Her- 
rera de la Sota, president of the BBB in Caracas, Vene- 



198 



• * THE BUSINESS CONSCIENCE • • 

zuela. His country, he reported, had been "a prime object 
of attack and natural prey for confidence men and inter- 
national swindlers from all parts of the world." Into this 
atmosphere, he added, "the influence of the BBB has 
come as a ray of light." But he complained that local 
American managers of U.S. subsidiary companies had 
shown scant interest in promoting the Caracas BBB. He 
suggested they had been away from their native country 
so long that they did not fully appreciate their opportu- 
nity for leadership. It was a sorry commentary, and I 
trust these examples are few. 

The American businessman never should be bashful 
about helping to promote higher standards in any coun- 
try. He never should feel that local standards are so low 
that his conduct doesn't matter. Nor should he think that 
local standards are so high that it would be presumptuous 
to urge still higher standards. 

In Britain, for example, business standards are roughly 
comparable to those in the United States. Yet the British 
are keenly interested in raising their standards. In August 
of 1962, an eleven-member Consumer Protection Com- 
mittee climaxed three years of effort by presenting to the 
British Board of Trade a 150,000-word report on ways 
to safeguard consumer interests through higher business 
standards. 

This document contained many striking features but, 
as an American, I was struck most by similarities with 
the Consumer Protection Message which President Ken- 
nedy had sent to our Congress a few months earlier. The 
British report started off, for instance, by making exactly 



199 



• • THE BUSINESS CONSCIENCE • • 

the same point as President Kennedy: the manufacturer 
and the distributor speak with a well-organized and pow- 
erful voice in national affairs but the consumer is unor- 
ganized and voiceless. 

Also included in the report were a series of questions 
directed at British appliance manufacturers; questions 
reminiscent of the inquiries directed at American busi- 
nessmen by the Business Ethics Advisory Council: Were 
the manufacturers certain that their quality control and 
inspection procedures matched the standards demanded 
by their duty to their customers, to the reputation of 
their brand names, and to the nation's reputation? Did 
they doubt that, in the long run, a satisfied customer is 
worth more than the cost of making good a product de- 
fect of questioned origin? 

A strong argument can be made that the American 
who does business abroad not only had a responsibility 
to observe the same ethical standards which he observes 
at home but must be extra careful about his behavior. 

The American's conduct must be above reproach, if 
only because the wealth, power and influence of the 
United States places its citizens and its businesses under 
a particularly bright spotlight. Aberrations that might be 
excused in the case of other foreign citizens or firms are 
magnified in the case of U.S. citizens. Virtue and humil- 
ity of a high order are expected. The alternatives are 
more Stonehill cases, more propaganda windfalls for the 
communists— and less support and less business for the 
United States. 



200 



» t 



' I * I ' * 



12 

THE VALUE 
OF ETHICAL CODES 



/^NO he late Thomas J. Watson, Sr., of International 
v / Business Machines Corporation, popularized one 
^-^ of the most striking of all business mottoes: 
"Think." Mr. Watson's one-word admonition to his em- 
ployees was so punchy and pointed that it has been cop- 
ied and parodied many times. And even the parodies are 
a grudging tribute to the impact of Mr. Watson's motto. 
"Think" surely is a key word for anyone seeking busi- 
ness profits. And it is equally valid as a watchword for 
all those who want to maintain good ethics— to do their 
human duty— in business operations. At the same time, 
it is worth noting that Air. Watson went beyond this sin- 
gle word and gave businessmen an entire sentence to 
think about. Said Mr. Watson: "If you reach for a star, 



203 



• • THE BUSINESS CONSCIENCE • • 

you will never get a star, but neither will you get a 
handful of mud." 

The many businessmen who are concerned about pay- 
ing more than lip service to their ethical obligations in- 
stinctively will think and reach for a star. In fact, this is 
the essence of every practical effort to promote higher 
business standards. But it is no more than the essence. It 
still is necessary to look beyond philosophy to the con- 
crete steps we can take to make certain that our personal 
behavior in business, and the collective behavior of those 
who comprise our firms, measure up to the high ideals 
of American enterprise. 

It seems obvious that the first step necessarily involves 
the formulation of company or industry policy on mat- 
ters having ethical overtones. Without such a policy, 
each executive and employee is "on his own" in an area 
where the grays predominate and tend to obscure the 
proper path. To avoid this, well-lighted guideposts are 
needed. 

Few companies can survive without some kind of pol- 
icy regarding ethical questions. And it isn't always nec- 
essary to put these policies in writing. Many small firms 
can keep their ethical standards well burnished by having 
regular staff meetings of key employees. This can some- 
times be the best approach in situations where the boss 
knows everyone and where, in countless small but telling 
ways, he can demonstrate the ideals that he observes and 
that he demands of his subordinates. However, the larger 
enterprise that relies on policies passed around by word 
of mouth is courting trouble; too often such policies are 



204 



• • THE BUSINESS CONSCIENCE • • 

easily ignored or misunderstood. Just as bad is the situa- 
tion of those companies having written policies that sel- 
dom are consulted or invoked. 

One of my associates in the Department of Commerce, 
a former businessman who had his own firm, told me that 
his company adopted a formal code of ethics that hung, 
in an elaborate frame, outside his office. But the first time 
an employee was challenged for a violation of the code, 
the wrongdoer expressed amazement that the code was 
designed for any purpose except "window dressing." My 
associate quickly decided that something had to be done 
to knock the cobwebs off the fancy placard. 

Of course, some businessmen oppose the idea of draft- 
ing codes. Some take a cynical attitude and proclaim their 
conviction that "you can't legislate good morals." Others 
feel that, by the mere act of drafting a code, outsiders 
will jump to the conclusion that something is wrong in- 
side their company or industry; therefore, they prefer 
to remain codeless. 

Certainly, no code will guarantee high ethical per- 
formance. However, you can take a long step in that di- 
rection with the help of a code that has teeth and is fairly 
but firmly enforced. As for the second objection, that 
code making implies wrongdoing, I believe the public 
welcomes standard-setting action of this kind and views 
it, quite properly, as a symbol of the business commu- 
nity's good faith in professing lofty ideals. If the public 
ever got the idea that business was afraid to adopt formal 
ethical guidelines, then there would be trouble. 

Father Raymond Baumhart, in reporting on the study 



205 



• • THE BUSINESS CONSCIENCE • • 

of business ethics by the Harvard Business Review, asked 
executives how they would react to an attempt to de- 
velop a code of ethical practices for their own industry. 
Half of those who were questioned said they would 
strongly favor such a move. An additional twenty-one 
per cent supported the idea, though less strongly. Nine- 
teen per cent were neutral and only ten per cent voiced 
opposition. 

Going beyond this basic question, Father Baumhart 
sought comment on specific ideas concerning the pos- 
sible value of ethical codes. This is what he reported: 
seventy-one per cent thought a code would raise the 
ethical level of their industry; eighty-seven per cent felt 
that a code would not be easy to enforce; there was a 
near-even split of opinion on whether a code would re- 
duce sharp practices in tough, competitive situations; 
eighty-eight per cent said a code would help them when 
they wanted to refuse an unethical request in an imper- 
sonal way; and eighty-one per cent agreed that a code 
would help executives by defining clearly the limits of 
acceptable conduct. 

Since predominant business opinion would seem to 
favor the establishment of codes, how do you go about 
the codemaking task? I won't pretend to speak defini- 
tively on the subject, but simply will give a brief sum- 
mary of certain factors that I think deserve serious 
consideration. Others will be able to add to the list, I am 
sure, and there are a number of publications that offer a 
much more exhaustive treatment of some of the ideas I 
will mention. 



206 



• • THE BUSINESS CONSCIENCE • - 

One such publication was issued by the American 
Management Association in 1958 and is entitled Manage- 
ment Creeds and Philosophies. And the first point em- 
phasized here is this: "The process of formulating the 
creed is often more valuable than the finished product." 
In other words, great benefits flow from the simple fact 
that those writing a code must sit down and think about 
ethical problems. 

One benefit is illustrated by the experience of a fairly 
small firm I know which has about one hundred key em- 
ployees. When this company set about writing a code, 
top management began by meeting with all these em- 
ployees to get a better picture of the specific ethical 
problems faced by those operating on a lower level. Man- 
agement was amazed. It seemed that everyone in the 
company had been facing a wide variety of serious ethi- 
cal dilemmas which they had handled case by case with- 
out any guidance from above. Worse yet, most cases had 
been resolved in favor of the course that would produce 
the greatest short-run profit. Management discovered 
that a number of shocking practices had been preva- 
lent because of two employee attitudes: 1. The company 
had always placed greatest emphasis on rewarding those 
who made the biggest contribution to profits. 2. Because 
the firm never had evidenced any great concern for ethi- 
cal considerations, it seemed to most employees that cut- 
ting corners in order to maximize profits was a condition 
of employment— that was how the business operated; if 
they didn't like it, they could quit. 
Right here, it seems to me, is a compelling reason for 



207 



• • THE BUSINESS CONSCIENCE • • 

encouraging broad participation in any effort to write a 
company creed or code. It's the best way to make cer- 
tain that the real problems experienced down the line 
will be brought to the attention of top management and 
dealt with properly. And if a code is imposed from on 
high, it can only reflect the aspirations of the company 
and its management, who may be ignorant of certain 
questionable practices in their firm or industry. Through 
broad participation, however, the company can juxtapose 
—perhaps for the first time— its aspirations and its current 
situation. This is the way to develop a meaningful code. 

Equally important, by bringing as many employees as 
possible into the codemaking process, you enable them 
to feel that they have had a personal hand in the creation 
of the code. This means they will take the code more 
seriously, and they are the more likely to fully under- 
stand and appreciate its various provisions. 

Wherever practical, therefore, it would seem that man- 
agement should encourage employees at all levels to 
participate; to meet and discuss the ethical problems in- 
volved in their work; to submit their own ideas of stand- 
ards to be proclaimed. 

To give a specific example, here is how Lance, Inc., of 
Charlotte, North Carolina, developed its creed, as re- 
ported by Stewart Thompson in the American Manage- 
ment Association study: 

. . . the creed was developed with the aid of all 
supervisory personnel. In this company each depart- 
ment head and all supervisors— including sales and 



208 



• • THE BUSINESS CONSCIENCE • • 

factory supervisors, branch managers, and district 
managers— were asked to write out their version of 
"the Lance creed and philosophy of doing business." 
The replies were assembled and studied by a com- 
mittee, which made a rough draft of the creed. 
Copies were sent to all those who had submitted sug- 
gestions. In turn, they were asked to write out their 
personal adaptations of the rough draft— keeping in 
mind, of course, the fact that it already represented 
a composite of their own ideas. The committee used 
these revisions when it formulated the finished ver- 
sion, which was presented to the company's board 
of directors for final approval. Lance's personnel 
and public relations director commented that ". . . 
this approach was one which helped develop the 
true spirit of our creed in the light of past practices." 

In the same connection, I think businessmen might get 
valuable pointers from the experience of the American 
Psychological Association, which adopted a code for 
psychologists a decade ago. Association members first 
were asked to report on a firsthand experience in which 
they had to make a decision having ethical implications. 
Further, they were asked to give their own appraisal of 
the ethical issues involved. Once these reports were re- 
ceived, they were studied to see if the personal experi- 
ences fell into any discernable pattern. It was discovered 
that the incidents fell into six main categories. Next, sepa- 
rate committees were appointed to give close study to 
the problems involved in each category, and to draft 



209 



• • THE BUSINESS CONSCIENCE • • 

ethical standards covering these situations. The end re- 
sult was a model of meaningful precision in codemaking. 

I cite these only as examples. There are many alterna- 
tive approaches. But I want to re-emphasize my belief 
that it is important to encourage broad participation, and 
for two reasons: first, to get more employees to relate 
ethics to their daily work and, second, to get a broad pic- 
ture of the problem areas needing attention. 

We have spoken here primarily about company codes. 
But the development of industry codes is of equal impor- 
tance. In fact, it seems to me that these are the logical 
forerunners of company codes, particularly in those in- 
dustries where one or more bad practices are widespread. 
Lacking an industry code, it is easy for an individual 
company to argue: 1. This is an industry problem. We 
can't do the job ourselves. 2. Why should we take the 
lead in barring questionable practices while our compet- 
itors remain free to operate in their old way? 

Trade associations can play a great part in the devel- 
opment of industry codes that attack those problems that 
are industrywide. By acting first, an association can en- 
courage individual member firms to follow up with codes 
of their own, tailored to their particular circumstances. 

Here again, the need for broad participation is great. 
If the individual members of the association feel that they 
have played no part in drafting the industry code, they 
are not so likely to take it seriously. They must partici- 
pate, and actively. Also, the industry code must have 
teeth. A trade association code that doesn't provide for 



210 



• • THE BUSINESS CONSCIENCE • * 

the expulsion of any member violating the code isn't 
worth the paper it's written on. 

Although it seems to me that there is a compelling ar- 
gument for trade associations to take the lead in code- 
making, many experts contend that this is impractical. 
And, in some industries, this may be true. The principal 
objection seems to be that too much inertia must be over- 
come; businessmen attending a trade association conven- 
tion are too apt to desert the meeting room and adjourn 
to a convenient cocktail lounge if ethics are discussed; 
it's too difficult to elicit the broad participation required. 

According to those who question the wisdom of try- 
ing to start out with industry codes, a trade association 
will only be spurred to effective action once a few of its 
principal members have gone through the codemaking 
process on their own, and learned its value. 

If this is true, there is the greater reason for individual 
companies— and particularly the industry leaders— to get 
started with their own codes. And this is happening in 
some industries. 

One problem facing any company or industry in draft- 
ing a code is deciding how specific it should be. Person- 
ally, I feel that a code should avoid fuzzy platitudes and 
deal in plain language with the real problem areas. I think 
it should be very specific. Certainly, a code so fuzzily 
worded that everything is left to personal interpretation 
can do more harm than good. In such a case, employees 
and executives may feel they are being encouraged to 
skirt as close to the ragged edge of the code as possible, 
in order to make profits at any cost. Also, the existence 



211 



• • THE BUSINESS CONSCIENCE • • 

of a platitudinous code that has little or no meaning can 
lull a company into the complacent attitude that every- 
thing has been taken care of. For example, what about 
the effectiveness of the following code: 

1. We will strive at all times to conduct the af- 
fairs of this company to merit public confidence in 
American business and industry and faith in our 
free, private, competitive enterprise system. 

2. We will see that our employees are given every 
opportunity to progress with the company and are 
appropriately compensated for their work. 

3. We will deal fairly with customers and sup- 
pliers and extend to them the same treatment we 
wish to receive ourselves. 

4. We will compete vigorously to serve our cus- 
tomers and expand our business, but will avoid un- 
fair or unethical practices. 

5. We will seek, through sound management 
practices, to produce the profit necessary to the con- 
tinued progress of the business and so fulfill our 
responsibilities to our stockholders, employees, cus- 
tomers, community and nation. 

Could you find much guidance through the gray areas 
of business operations by consulting this particular code, 
put out by a national association? It is much too general 
and does not come to grips with real problems. At the 
same time, many companies that have excellent records 
for promoting high standards boast of codes no more 



212 



• • THE BUSINESS CONSCIENCE • • 

specific than this. There is a difference, however. Many 
such companies also have issued more detailed manage- 
ment guides and statements covering specific areas of 
operations that enlarge upon the generalities of their code. 
This can be a perfectly acceptable approach. In large and 
complex organizations, no single document can cover all 
the problem areas. But the important point is to make 
sure that all these areas are covered, in one way or an- 
other. 

It is important to emphasize, too, that the formulation 
of even the most precise, far-ranging code is only a first 
step toward the creation of a living document. Manage- 
ment must then make it clear that the code is not just 
"window dressing." 

The creation of any ethical code should be followed 
by the development of an educational and communica- 
tions program; something that will already have been 
started if there was broad participation in the drafting of 
the code itself. Employees and executives must be made 
aware of the code and its meaning. One method might 
be to have them sit down at their own levels in the com- 
pany and discuss the code, interpret it, and find out what 
it means in terms of their own daily work. As part of a 
continuing program, it might also be useful to develop 
specific case histories to be discussed in sessions of this 
kind. 

Surely the importance of developing and maintaining 
effective lines of communication on ethical matters can- 
not be stressed too strongly. And this is no easy task, 
even for the biggest and best-managed companies. Henry 



213 



• • THE BUSINESS CONSCIENCE • • 

Ford II, in his 1961 address on business ethics, told a 
pertinent story about a district sales employee who in- 
volved the company in an antitrust pricing case. "His 
was not the only fault," said Mr. Ford. "It was also the 
fault of our management for failing to instruct the field 
personnel fully on the details of proper conduct." 

As part of any effective communications program, 
there should be individuals at all levels in a firm who can 
answer questions about the company code and standards 
as they arise. Because many problems cannot be resolved 
in terms of black and white but involve dilemmas, em- 
ployees must have access to advice and counsel. And I 
don't mean that it is necessary or wise to hire a crew of 
social workers for this purpose. It probably would be 
best if designated counselors were longtime employees 
who understand the company and the industry at least 
as well as those who will come to them with questions. 

There must also be clear communication of the fact 
that top management subscribes fully to the code and 
will enforce it firmly but fairly. A code cannot remain 
alive if employees get the idea that it does not have the 
complete support of top management, or that exceptions 
are permitted. If it ever becomes apparent that certain 
employees have been allowed to "get away with" viola- 
tions, the code is dead. Employees will know if this hap- 
pens, and they also will know if the man who produces 
profits at any cost is the one who wins a coveted promo- 
tion while ethical behavior, like other virtues, is left to 
be its own and only reward. If this happens, other em- 
ployees will be quick to catch the cue and act accord- 



214 



• • THE BUSINESS CONSCIENCE - • 

ingly. It is the prime responsibility of top management 
to make certain that there is no cue of this kind. 

Finally, a code cannot continue to live unless there is 
a constant effort to keep it alive in the minds of execu- 
tives and employees— and to subject it to continuing re- 
view and updating. Management spends large sums each 
year to train its people in the benefits of cost- and profits- 
consciousness. Ethical consciousness requires the same 
sustained effort— and is worth just as much to the com- 
pany in the long run. For if a firm does not develop and 
nurture a reputation for fair dealing in all phases of its 
operations, its profits will suffer. And one major scandal 
sometimes can be ruinous. The new employee must be 
given a thorough grounding in the required ideals of the 
company, just as old hands are never allowed to forget 
them. 

Because ethics are a part of social development, they 
change with society and must be kept current. Business 
operations change, too, and create new problems that 
must be met. No code can be looked upon as the product 
of a crash program, requiring a spurt of sustained effort 
only to be relegated to a secondary position once the fine 
words are on paper. To maintain and elevate the ideals 
and standards— and practices— of our free enterprise sys- 
tem requires constant effort. Day after day, we must 
think and reach for a star. 



215 



13 

ETHICS EDUCATION 
AND THE EDUCATORS 



^-^uying an air conditioner shouldn't require a col- 
z^-k / S ^ e S e degree in engineering but, until quite re- 
{~S*-s cently, the engineer who wanted to cool his 
house had a big advantage over most of us. The layman 
was easily confused— and misled— by advertisements and 
sales literature for many leading brands of air condition- 
ers. It was the fashion, for example, to make claims in 
terms of tonnage. Theoretically, a one-ton unit was sup- 
posed to remove 12,000 British thermal units of heat in 
an hour's time. Actually, it was apt to range anywhere 
from 8,000 to 12,000 BTU's. Because tonnage ratings 
were wholly unreliable, they gradually were dropped in 
favor of claims stated in terms of horsepower. But horse- 
power was equally imprecise since it did not measure 



216 



• • THE BUSINESS CONSCIENCE • • 

actual cooling but, rather, the power of the electric mo- 
tor operating an air conditioner's compressor. 

This haziness of vital ratings meant the average con- 
sumer was quite incapable of comparing the real cooling 
power of competing units. Manufacturers and retailers 
were free to make all kinds of insupportable claims in 
order to push a particular brand or model. The public 
was the loser but, potentially, there were other losers. 
There was the danger that manufacturers and retailers 
would suffer, too, if the consumer became convinced 
that the industry was playing him for a fool. To avoid 
such a situation, the National Electrical Manufacturers 
Association used its influence as an industry spokesman 
to promote meaningful ratings. It set up a testing pro- 
gram, conducted by an independent laboratory, to de- 
termine the cooling capacity of each model in terms of 
British thermal units of heat removed per hour— the meas- 
ure recognized by engineers as the most precise. And it 
persuaded manufacturers accounting for ninety per cent 
of industry sales to submit their models for testing and 
certification. It also offered to open its program to non- 
member firms. And it cooperated with the Association of 
Better Business Bureaus to publicize the program so con- 
sumers would be aware of the best way to compare the 
cooling power of competing air conditioners. You didn't 
need an engineering degree to do it; you just had to look 
at the rating stamped on each machine. 

I mention this program at some length because it is a 
fine example of the sort of thing that needs to be done on 



217 



• • THE BUSINESS CONSCIENCE • • 

a continuing basis if business is to maintain high ethical 
standards. 

The air conditioning industry was free to persist in 
confusing and misleading the public with its advertising 
claims. After all, the old tonnage and horsepower ratings 
were scientific, after a fashion, and they certainly were 
perfectly legal. But the industry decided that merely 
keeping within the law was not sufficient; that it had a 
responsibility to do everything it could to protect the 
consumer against both confusion and deception. So it 
acted on its own, without any prodding from govern- 
ment, to clean up a trouble spot in its midst. 

Many industries have been equally alert and forward- 
looking in dealing effectively with emerging problems. 
But the spirit of self -regulation has not captured all indus- 
tries or companies. There still are those who recognize a 
problem only when it is so glaring that there is talk of 
government intervention— the very thing businessmen 
complain about and want to avoid. 

As stated before, the only sure way to avoid govern- 
ment interference is to make it unnecessary. And this 
means that self-policing must begin on a voluntary basis 
long before a problem is painfully evident to the general 
public. Business and industry must anticipate problems 
and deal with them before they become acute and inspire 
public comment and action. Failing that, they must try 
to overtake problems that already have grown to visible 
proportions. 

The advertising of new and used autos by local dealers 
is an example of a troublesome area that must be evident 



21$ 



• • THE BUSINESS CONSCIENCE • • 

to anyone who has shopped around for a car. Abuses 
have developed over a period of many years with only 
sporadic and largely ineffectual attempts to root them 
out. 

In recent years, a more concerted cleanup effort has 
developed from a collaboration between the National 
Automobile Dealers Association and the Better Business 
Bureaus. These two organizations have drafted a set of 
Recommended Standards of Practice for Advertising and 
Selling Automobiles. This is a crystal-clear document 
that is very precise in differentiating between acceptable 
tactics and those which are deceitful if not downright 
fraudulent. But the code has a major shortcoming because 
the NADA "does not engage in any activity pertaining 
to the administration or enforcement of these standards." 
In other words, a member can thumb his nose at the code 
and remain in good standing. 

Even so, the code cannot be ignored with impunity. 
The Better Business Bureaus watch closely for violations 
and, when they find them, don't hesitate to identify the 
culprits for the benefit of local consumers. In this indirect 
fashion, the code does have teeth— though probably not 
enough to discourage the dealer who is more intent on 
grabbing a fast buck than in earning a reputation for fair 
dealing. 

The Association of Better Business Bureaus and its 
more than 120 local bureaus from coast to coast represent 
one of the business community's most ambitious and ef- 
fective attempts at self-regulation. Many people believe 
the aim of the BBB's is to protect consumers. Actually, 



219 



* • THE BUSINESS CONSCIENCE • • 

this is how the National Bureau in New York City de- 
scribes its function: "To elevate the standards of business 
conduct, fight frauds, and assist the public to achieve 
maximum satisfaction from its relations with business." 
The public is mentioned last, and intentionally so. The 
prime purpose of the BBB movement is to protect the 
responsible businessman against unethical competitors 
who would rob him of sales through unfair practices. 
The fact that this effort also guards the interests of con- 
sumers is a fortunate by-product. 

Samuel C. Dobbs, sales manager and later president of 
the Coca-Cola Company, was the father of the Better 
Business Bureaus. Dobbs began developing the BBB idea 
after Coca-Cola was hailed into court in 1907 to answer 
false advertising charges brought under the Federal Pure 
Food and Drug Act. Although Coca-Cola had little dif- 
ficulty in disproving the charges, Dobbs was greatly dis- 
turbed by a statement made in court by the company's 
attorney: "Why, all advertising is exaggerated. Nobody 
really believes it." 

Dobbs decided that if advertising merited so little faith, 
something should be done to change the situation. Be- 
coming an evangelist of self-regulation, he toured the 
country to urge that advertisers put their own house in 
order. His efforts were climaxed by the founding of the 
National Vigilance Committee, the forerunner of the 
BBB's,inl912. 

In 1961, the Better Business Bureaus investigated 39,141 
pieces of advertising and looked into 258,173 complaints 
from the public. The areas which caused the greatest dif- 



220 



• • THE BUSINESS CONSCIENCE • • 

ficulty, as measured by the number of public complaints 
received, were: home improvement, appliance sales and 
service, radio-TV sales and service, magazine sales, pho- 
tography, auto equipment and service, home furnishings, 
apparel, and used car sales. 

As is evident from these categories, the BBB's are ac- 
tive in policing the local businesses which give the aver- 
age American his most forceful firsthand impression of 
business standards. But this does not mean that the Bu- 
reaus neglect the activities of large corporations. It only 
means that a single complaint against a multi-million-dol- 
lar advertising campaign gets the same treatment, statis- 
tically, as one involving a flier distributed by a local 
"termite expert." 

While there is no other organization quite like the As- 
sociation of Better Business Bureaus, many organizations 
do equally worthwhile work to insure high business 
standards. These range from such groups as the Chamber 
of Commerce of the United States, the National Asso- 
ciation of Manufacturers, the National Industrial Confer- 
ence Board and the American Management Association 
to local chambers of commerce, service clubs and busi- 
ness groups. 

The Business Ethics Advisory Council of the Depart- 
ment of Commerce received excellent help in its work 
from the American Management Association. The AMA 
is offering to aid any industry or company that wants to 
draft a set of ethical standards or develop ethics seminars 
for employees. In order to further the work of the Ethics 
Council, the American Management Association has be- 



221 



• • THE BUSINESS CONSCIENCE • • 

gun a pilot program to promote the establishment of 
company and industry codes. A feature of this effort was 
the preparation of a special step-by-step handbook to 
guide those responsible for ethics programs. And it has 
started work on a packaged seminar that, hopefully, will 
be found useful by many business groups and individual 
companies. 

Other groups are organizing locally to further the 
work of the Business Ethics Advisory Council. The 
"Committee of One Hundred'' that was started in Port- 
land, Oregon, is one example. 

The committee movement stemmed indirectly from a 
letter I received in 1961 from Sid Woodbury of Port- 
land, a friend and fellow Rotarian. Mr. Woodbury sug- 
gested there were thousands of hard-working, intelligent 
and experienced (but retired) businessmen in Rotary and 
elsewhere who would work enthusiastically and without 
salary to help the national government in worthwhile 
programs. I welcomed the idea and asked Mr. Woodbury 
to submit the names and qualifications of friends whom 
I could call, should the need arise. 

After the Ethics Council issued its Call for Action in 
January 1962, it occurred to me that Mr. Woodbury and 
his friends in Portland might be able to do something 
locally to push our Ethics Council's program. The Ore- 
gonians took to the idea with enthusiasm and formed the 
first Committee of One Hundred. The group includes 
leaders of various industries and professions, clergymen, 
labor leaders, educators and a former governor of the 
state. The members have organized themselves into fif- 



222 



• • THE BUSINESS CONSCIENCE • • 

teen working committees. Starting at the community 
level, they have worked down through individual indus- 
tries and, finally, individual firms to call attention to the 
continuing need for paying thought and attention to 
ethical aspects of business operations. Their work has 
met with a good reception locally, has been very produc- 
tive, and shows no sign of slowing down. Many cities 
could emulate their example. In fact, the Portland group 
now offers to share its experience with similar groups 
organizing in other communities. 

There is a job to be done, too, by the nation's colleges 
and universities— particularly by those which have schools 
of business or commerce. Many of these institutions have 
been conscious of their role for decades but, still, there is 
a need to reappraise their work. 

Business schools and professional schools generally are 
conscious of the fact that it is not enough to teach stu- 
dents such specialized courses as accounting, marketing, 
advertising, etc.; they also must teach the broad princi- 
ples of business and the ethical principles which are an 
integral part of all responsible business operations. They 
must point out not only the greatness of the free enter- 
prise system but the responsibility of those who operate 
that system to keep it honest and high-principled, both 
for its success at home and for its influence the world 
around. 

Most universities teach ethics in their philosophy de- 
partments, but business conduct is mentioned only inci- 
dentally, if at all, in these classes. I'm thinking more of 
courses aimed directly at those who plan to enter busi- 



223 



• • THE BUSINESS CONSCIENCE • • 

ness careers; courses that give young men and women a 
taste of the real-life problems that face people in business, 
and the difficulties involved in resolving many of these 
problems. 

In mid-1962, the Business Ethics Advisory Council 
polled leading schools of business administration to find 
out what was being done to teach business ethics. The 
Council found that few schools offered a separate course 
in business ethics. The tendency was to weave an ethical 
content into all the specialized courses; i.e., in statistics, 
to make it clear that "while figures can't lie, liars can fig- 
ure." One of the exceptions was the University of Wis- 
consin, which has taught business ethics as a separate 
course since 1907; Wisconsin reported that its course is 
so popular that enrollment must be limited. More com- 
mon was the experience of another school which said it 
dropped an ethics course because it became too preachy 
and was shunned by the student body. Why the differ- 
ence—is it content or leadership? 

To teach ethics as an integral part of every specialized 
business course can be practical and even preferable; if 
ethics is offered as a separate course, the teaching staff 
may decide that the subject is adequately covered and 
neglect the ethical aspects of other courses; also, a sepa- 
rate course may cause students unconsciously to segregate 
the subject in their minds and fail to relate it to over-all 
business operations. However, I would respectfully sug- 
gest that our colleges review the content of their special- 
ized courses to make certain that ethical questions are 
not being overlooked or subordinated. And I would hope 



224 



* • THE BUSINESS CONSCIENCE • • 

that the universities might follow the lead of the Uni- 
versity of Wisconsin in offering special courses and sem- 
inars. 

Particularly in the graduate schools, I would suggest 
that thought be given to establishing seminars in business 
ethics. One idea submitted to the Council was to invite 
business and professional men to appear weekly and pre- 
sent a case from first hand knowledge. After a guest had 
presented his case, students could discuss how best to 
handle the problem, then hear the guest tell how he han- 
dled it. If several schools cooperated in such a program, 
they soon could develop a file of challenging case his- 
tories to share with others, thus cutting down on the 
need to search for local guests and at the same time keep 
the seminars geared to practical business affairs. 

Incidentally, the dean of one large school of business 
administration made a comment to the Ethics Council 
which struck me as worth noting. This man said that 
college students tend to be idealistic in approaching busi- 
ness ethics and only learn corner-cutting and question- 
able practices after leaving school. 

"Perhaps students and teachers should be talking to 
people in the business community about business ethics 
rather than having people in the business community 
come into the schools to talk to the teachers and stu- 
dents," he said. "The problem does not lie in the colleges 
but lies in the business community. If it is to be solved, 
it must be solved there." 

The dean made a point worth considering, and one that 
already has been considered by several universities. I 



225 



• • THE BUSINESS CONSCIENCE - - 

know a number of schools which, in addition to holding 
ethics seminars for students, sponsor them for local busi- 
nessmen. I feel sure this can be an effective way to em- 
phasize the importance of ethics to businessmen so busy 
with their daily work that they follow a fixed pattern 
without stopping to reflect occasionally on the ethical 
aspects of their operations. Even the businessman who is 
behaving with absolute propriety will lose nothing by 
pausing to reflect on the nature of his actions and his 
role in society. Others may be inspired to give greater 
thought to their responsibilities. 

Clergymen, too, have a great opportunity to offer spe- 
cial guidance to the businessmen who worship at their 
churches and synagogues. Of course, there is the danger 
that they will know too little about business operations 
or take the preachy approach that many businessmen 
would find remote from their daily activities. Despite the 
obvious pitfalls, however, many businessmen would wel- 
come a greater effort on the part of our churches to help 
promote high business standards. An example was the 
reception given the New York minister who pioneered 
the "seminar on rails" which I mentioned much earlier. 

Father Baumhart, in his study for the Harvard Busi?iess 
Review, found that of all those executives who expressed 
an opinion, "four out of every five were dissatisfied with 
what organized religion had or had not done" in the area 
of business ethics. 

Of course, some businessmen (twenty per cent in Fa- 
ther Baumhart's survey) want no help from the clergy. 
One company president, for instance, said his "religious 



226 



• • THE BUSINESS CONSCIENCE - • 

convictions were not in need of assistance." And another 
said, "I don't believe the clergy should be permitted to 
preach to businessmen." This is no reason, however, for 
the clergyman to throw up his hands and duck the sub- 
ject. Under our system, there is nothing compulsive about 
religious observance. Neither can there be any compul- 
sion in offering religious guidance to businessmen; they 
can take it if they wish or ignore it entirely. And the 
clergyman can be of real help to those who want or need 
such guidance. 

Father Baumhart reached the conclusion that "most 
businessmen welcome the assistance of clergymen who 
are well educated in business, economics and the social 
sciences." He said many "favor the idea of regular meet- 
ings, attended by a small group of businessmen and a 
clergyman, for the purpose of discussing problems in 
business ethics." 

More than a score of prominent religious leaders have 
been assisting the Business Ethics Advisory Council by 
trying to develop specific programs for offering business- 
men constructive help from the clergy. To bring these 
ideas to full fruition is a genuine challenge— but one with 
much promise. 

Of course, no businessman should leave the job of pro- 
moting competitive ethics to a trade organization, a uni- 
versity or a church. The assignment is his in the first 
instance. High standards can be encouraged by outsiders 
but they cannot be imposed. That must come from 
within; from within the individual who tries to see his 
duty clearly and act accordingly— at home, in his com- 



227 



• • THE BUSINESS CONSCIENCE • • 

munity, in his daily work. And he should welcome help 
from all those who have a keen interest, as American, cit- 
izens, in preserving the good name of our competitive 
economic system. 



228 



u 

GOOD ETHICS START 
AT THE TOP 



& 



friend of mine who left industry to serve the 
national government during World War II 
once told me of his first experience in Wash- 
ington—an experience that was rather noteworthy. I will 
relate it here because it is very pertinent to our conclud- 
ing topic: the role of top management in helping to cre- 
ate an enduring climate of ethical awareness in our busi- 
ness community. 

My friend, having been recruited for one of the senior 
management jobs in the Office of Price Administration, 
visited the agency the day before he was to report for 
work. His new associates welcomed him and suggested he 
sit in on one of the many conferences that seem an in- 
evitable part of government. He was told that the experi- 
ence would be a good way to "get his feet wet." 



229 



• • THE BUSINESS CONSCIENCE • • 

One participant took a very firm position on a vexing 
problem put before the meeting, expressing himself in a 
rather loud voice which the others interpreted as a sign 
of deep conviction. But later in the meeting, with the 
same subject still under discussion, this man became 
equally vehement in defending an exactly opposite view; 
the problem and the principles at issue were unchanged 
but his attitude had shifted with apparent unconcern, by 
180 degrees. 

At the end of the meeting, my friend was asked if he 
had anything to say. 

"No," he answered, "but I would like to ask a question. 
I wonder what the gentleman who spoke on such-and- 
such a problem meant by his last statement? It repre- 
sented a complete change from the attitude he took 
earlier in the meeting." 

The loud-voiced conferee who was present turned to 
my friend and declared, "I didn't make the statement in 
the first place." Right in front of a dozen or more peo- 
ple, he lied through his teeth. And he proceeded to give 
forth with a lot of doubletalk designed to obscure his 
shift of position. 

After the meeting was adjourned, my friend asked a 
high O.P.A. official, "Where does this man work?" And 
he was told, "He works for you; he's one of your asso- 



ciates." 



'He was one of my associates," said my friend. 

'What do you mean?" asked the other man. 

'That fellow will not work for me," said my friend, 



230 



• • THE BUSINESS CONSCIENCE • • 

"because he is a liar. Nobody can lie to me and work for 
me if I know about it." 

And my friend was told, "This sounds like tough ac- 
tion but you're the boss." 

The man was not allowed to report for his usual work 
the next morning. But he wasn't fired, either. He was 
transferred to another agency. And, "Anyway, all he had 
done was to lie," observed another employee. 

My friend learned for himself a lesson about one facet 
of government that always seems strange to those fresh 
from private industry: the difficulty of removing anyone 
from a government job. But he also taught his new asso- 
ciates in government a lesson of great importance. He 
made it clear at the outset that he expected— and de- 
manded—complete honesty. It was a lesson that made a 
deep impression on his new staff; they got a quick and 
revealing glimpse of my friend's personal standards and 
realized that anyone who ignored those standards would 
do so at his own risk. Not that their standards were any 
lower, of course, because government employees are as 
good as those in private enterprise; they are just as hon- 
est and just as competent. But if their standards happen 
to be lower in an individual case, the lesson was well 
worth it. 

Top management must set the moral tone in any or- 
ganization, and it must personally see to it that the staff 
remains on key. If the standards of top management are 
high, the chances are excellent that standards throughout 
the organization will be equally high. But if the men at 
the top have low standards, there is the ever-present dan- 



231 



• • THE BUSINESS CONSCIENCE • • 

ger that more honorable men below will be corrupted by 
the attitude of those above them and the organization 
will take on a shoddy tone. 

I once read about a war profiteer who was astonished 
to learn that employees were stealing equipment and ma- 
terials from his plant. 

"How could they do this to me!" he exclaimed. "I pay 
them well." 

And his plant supervisor told him, "If you teach a 
man to steal for you, he'll steal from you." 

Subordinates quickly discern the standards of their 
bosses and quite often act accordingly. If the boss is a 
corner-cutter, or is inclined to close his eyes to bad prac- 
tices, the employees will find him out. And the weakest 
among them will quickly take their cue from him, mak- 
ing it increasingly difficult for more honorable colleagues 
to maintain their own higher standards. 

Good ethics must start at the top, where the most in- 
fluential example is set. And they must be enforced from 
the top. 

In this connection, it is important to note, also, that top 
management is not confined to a company's president or 
board chairman or members of the executive committee. 
All supervisory employees are a part of top management 
and must share the burden of setting a proper ethical 
tone. The sales manager is top management to his sales- 
men. The treasurer is top management to his accountants 
and secretaries. The plant foreman is top management to 
the production workers assigned to his section. Anyone 
with a supervisory function of any kind is top manage- 



232 



• - THE BUSINESS CONSCIENCE • • 

ment to someone in the organization, and is so considered 
by the public. The lady who greets visitors or answers the 
telephone will have a great deal to do with the public's 
impression of a firm; she is top management in her own 
right. 

The chain of command in any organization is like a 
straight line: a series of infinite points. Each of us along 
the line is one of those points and, together, we make the 
straight line. Or we can make a crooked line. The choice 
is ours. We cannot leave it to subordinates to determine 
whether the line is straight or crooked. They must do 
their part, of course. But the responsibility rests with us. 

Clarence Francis, the former board chairman of Gen- 
eral Foods Corporation, is one of many executives who 
appreciates the importance of setting ethical standards at 
the top. It was his practice, I understand, to address new- 
comers to the firm and personally emphasize the impor- 
tance of high ethical standards. He used to say: "Never 
do anything while employed by General Foods that you 
would be ashamed to read about on the front page of the 
New York Times." And he would urge all employees to 
report any incident which they felt did not match the 
standards he envisioned. 

I have been told about one General Foods employee 
who tested Mr. Francis, to find out if the little speech was 
genuine or just another example of "window dressing." 
This particular employee was disturbed about a claim 
made by the company in announcing a revised pension 
program. The company had told its workers that half 
the cost of the program was being met by General Foods, 



233 



• * THE BUSINESS CONSCIENCE ■ • 

the other half by the employees. Making some simple 
calculations, the employee found that in the case of cer- 
tain co-workers, the company's contribution was slightly 
less than half. Although the company-wide average was 
somewhat better than fifty per cent, he reported his find- 
ings and suggested that General Foods had acted unethi- 
cally and had deceived some of its workers. Mr. Francis 
agreed. The pension program was revised anew to make 
certain that the company paid at least half the cost of 
each employee's pension. 

When top management behaves like that, you know a 
real effort is being made to observe high standards. And 
the employees know it. If Mr. Francis had equivocated, 
which he could have done very easily by pointing out 
that the company's average contribution actually ex- 
ceeded its claim, he would have undercut all his efforts 
to promote good ethics. But Mr. Francis knew that it 
wasn't enough to talk about ethical conduct; it had to be 
a day-to-day practice carried on without shilly-shallying. 

In sharp contrast to the behavior of Mr. Francis was 
the conduct of a high official in a state where there had 
been minor pilfering of state property and the unauthor- 
ized use of state vehicles for personal convenience. The 
governor of the state told me that in one state agency, an 
employee actually had stolen money from a canteen 
operated by fellow workers; he was convicted of mis- 
appropriating about $5,000 and was given a jail sentence. 
The man's superior, a good-natured, popular official, 
went to the trouble of making a public statement that, 



234 



• • THE BUSINESS CONSCIENCE • • 

even though his subordinate had stolen $5,000, he cer- 
tainly was "a fine fellow." 

The boss in this case had a responsibility to make clear 
his insistence on complete honesty, if only to remind 
the convicted man's colleagues of their own responsibili- 
ties. And he certainly should have done this had he been 
concerned about halting the other evils being practiced 
by certain state employees. But instead he muddied the 
waters with a statement that could easily be interpreted 
as an indirect defense of thievery. It was a sorry example 
of loose and dangerous thinking on the part of a top 
management representative who let his own good nature 
and kindly spirit overrule his sense of right and wrong. 

I had a somewhat similar experience in the Department 
of Commerce in 1961. The Bureau of Public Roads, 
which is a Commerce agency, learned that some highway 
contractors in a certain state were bribing state highway 
employees to overlook work that failed to meet contract 
specifications. The Bureau immediately got in touch with 
the governor of the state and told him the federal govern- 
ment would not tolerate such conduct; Washington had 
a voice because federal highway aid funds were involved. 

A little later, I asked someone at our Bureau for a report 
on the situation. I was told that the problem had been 
solved. 

"How did the governor handle it?" I asked. 

"Well," said my informant, "he simply removed all the 
bribe-takers from jobs where federal money was in- 
volved." 

"What did he do with them?" I wanted to know. 



235 



• • THE BUSINESS CONSCIENCE • • 

"He kept them in the state highway department," I 
was told, "but I can assure you that all of them have as- 
signments where they won't handle any federal funds." 

"You can't be a little pregnant," I told the man from 
the Bureau. "Either you enforce honesty or you don't. 
Call the governor and let him know that he will not get 
any more federal aid until he gets rid of these people." 

You can imagine what the reaction is when known 
bribe-takers are allowed to retain their jobs with a state 
government, as sometimes happens. And the same can be 
said for any private firm that winks at wrongdoing by 
executives or other employees. The board chairman, the 
corporation president, the governor of a state, the federal 
cabinet officer, the foreman on the assembly line— all 
must recognize their responsibility to help preserve the 
integrity of their organizations by setting the proper 
tone. 

Surely all of us can agree that in business and govern- 
ment, or in any other activity, honesty not only is the 
best policy; it should be the only policy. The dishonest 
person in business or government surely is riding for a 
fall. The thief is likely to be discovered and the liar 
eventually trapped in his own web of fictions. If you 
make a statement to your customers, your employees, 
your stockholders, or your constituents, speak the truth 
and you won't one day run into the problem of trying to 
remember what you told them last time. If you do your 
best to speak truthfully and act with honor, you needn't 
worry about the past; you can keep your eye firmly fixed 



236 



► * THE BUSINESS CONSCIENCE - - 

on the future and use all your energies in building for a 
better tomorrow. 

Sometimes, you will have to depart sharply from past 
practice if you are to achieve the goal of a brighter future. 
Admittedly, it is difficult for a person to ignore tradition 
or custom even if he knows that to follow the tradition or 
custom is to continue a dishonest or unethical practice. 
But this shouldn't deter anyone from doing what he be- 
lieves is right. 

In many states, including my own, it had long been 
the practice for governors to come out in favor of a 
liquor referendum that would give people a chance to 
vote on whether or not they wanted liquor sold in the 
state. Most governors, myself included, were convinced 
that if the question was put to a vote, the combined in- 
fluence of the church people and the bootleggers, work- 
ing together in a strange combination, would defeat the 
"wets." 

I felt that in North Carolina our existing state control 
system, where liquor was sold by the package in a gov- 
ernment store and bootlegging was curbed, was the best 
thing for the state. However, it was hard to be unmindful 
of the tradition that had prompted each of my recent 
predecessors to favor a referendum in his initial message 
to the state legislature. As lieutenant governor, I was cata- 
pulted into the governorship upon the sudden death of 
my predecessor, and wanting to make a good impression 
in preparing my first address to the legislature, I followed 
a number of traditions including endorsement of a liquor 
referendum. It was a hypocritical thing to do. But I told 



237 



• • THE BUSINESS CONSCIENCE • • 

myself that, since the legislature never before had acted 
on the referendum idea, this wasn't apt to upset the exist- 
ing local option system which I actually favored. And it 
turned out that way, as the legislators never allowed it 
to get to a vote on the floor. 

In the months that followed, however, my conscience 
began to bother me and, when I had been elected gov- 
ernor in my own right, I decided to face up to the situa- 
tion. I told the legislature, and through that body the 
public, that I would not request a referendum but would 
insist on tighter control of liquor sales. I was advised in 
advance that this would mean the Democratic party 
would lose votes; that I could never again run for public 
office in North Carolina because of the emotional opposi- 
tion I would arouse. Actually, there was great relief 
throughout the state. I never received a word of criticism 
about my action and, on the contrary, received much 
praise. I think this often is the case if one is willing to do 
the right thing and not worry about what people may say. 

Too often, we permit the continuation of wrong 
practices because we are too timid to disturb the status 
quo. In business, for example, it is easy to say: "Our 
company has survived for a long time by following our 
current practices; why change things?" And so, even if 
some of the old practices are unwise or unethical, change 
is resisted. 

Although this happens too often, I do not believe for 
a moment that a majority of businessmen feel this way. 
In fact, if most businessmen resisted change, the free 
enterprise system would not have survived so long nor 



238 



• • THE BUSINESS CONSCIENCE • • 

won such universal support from our society. The system 
is strong and enduring because it is flexible; it is ready 
and willing to change with the march of events; it is ready 
and willing to try something new. The very word "en- 
terprise" connotes daring and experimentation; it is the 
antithesis of clinging to the dead past. 

Changes in American enterprise embrace the whole 
gamut of business operations. There is constant change 
in products, production techniques, marketing methods— 
and in the application of ethical standards. Of course, it 
is easy to overlook intangibles like standards of conduct 
and concentrate all attention on products, production and 
marketing. This is precisely what we must try to avoid, 
because the strength of our business community depends 
fully as much on the ethics of business conduct as on 
more material matters. 

If anyone doubts that business morality is deserving 
of the same thought and attention paid these other 
matters, let him review the economic history of the 
United States in this century. He will find that advances 
in products, production and marketing have been 
matched by a gradual elevation of business standards. 
And he will find that all successful businesses that have 
survived and prospered with the passage of time have 
kept in step with changes in all spheres of operation. Had 
they neglected ethics, or any of the other areas of ad- 
vance, they would have become another statistic in the 
tabulation of business failures. If our businessmen had not 
kept pace with progress in every field, you may be sure 



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• • THE BUSINESS CONSCIENCE • • 

that our country would not be a leader of the industrial- 
ized world. 

To be a leader can be very satisfying of course. But it 
also can be too satisfying, by inviting complacency. Al- 
though we are a leader, our leadership faces a strong and 
persistent challenge. Exponents of an ideology and eco- 
nomic ' system that pays scant attention to ethics are 
trying to convince the world that their methods are 
superior. And our friends in Western Europe are bent 
on demonstrating that they can put together a competi- 
tive economic machine of equal or greater strength and 
influence than our own. 

We must show the first group— the Soviet— that our 
system will continue to demonstrate its superiority in the 
only way that really counts— actual performance. And we 
must show our European friends that they are wise to try 
to match us, competitively, by using our methods instead 
of those advocated by the communist world. 

If we are to deserve a continuing position of economic 
leadership, we must constantly improve our products, 
find better production methods, polish up our marketing 
—and continue to raise our level of ethical conduct. 

Because we in the United States are economic leaders 
in many ways, and can already boast of high standards, 
we may be tempted into complacency. Because we have 
done well in the past, we may shrink from change. But 
if we fail to progress, we abdicate our leadership; we take 
ourselves out of the mainstream of history and, in effect, 
lose our right and ability to share in the top management 
of the world. 



240 



• • THE BUSINESS CONSCIENCE • • 

It is well known that many of the extinct civilizations 
vanished in a morass of materialism; they became too con- 
cerned with luxuries and pleasures and rejected their 
spiritual heritage. 

This is not the fate in store for the United States; it 
cannot be if all of us in management— in business and 
government— do our part to keep our country in the 
mainstream of human progress. 

In the area of business ethics, every American can help 
bring about the further progress that will be required in 
the decades ahead, because we are all "in business" in one 
sense or another. But the heaviest burden rests with the 
managers— the company presidents, the board chairmen, 
the labor leaders, the government officials, the plant fore- 
men, the proprietors— all the big and little bosses who 
keep our system ticking. The progress implicit in the 
word "enterprise" must flow largely from the efforts of 
these men and women, backed up by all their fellow 
Americans. 

And pray God that all of us who share this burden 
have the wisdom to show the same concern for spiritual 
and moral advancement as for material progress. To do 
this, we need not be saints but we can hold to our ideals 
and standards. We're all going to make mistakes, big and 
little, along the way. But we must try to minimize our 
mistakes and maximize proper conduct. We will find 
that this is the most satisfying and effective way to maxi- 
mize our profits and to improve our society. 



241 



APPENDIX 



The statement on business ethics which appears as an ap- 
pendix to this book was written by the Business Ethics 
Advisory Council and issued at its White House meeting 
with President Kennedy on January 16, 1962. 

I had organized the Council in the spring of 1961, 
following the decision of Federal Judge Ganey in the 
electrical industry anti-trust case. That case, and a 
number of other previously reported instances of mis- 
conduct by businessmen, had led me to feel that a 
continuation of such practices, even by a minority of 
businessmen, could undermine the public confidence in 
business which has been built up so painstakingly. 

With the approval of the President, I called together 
a group of outstanding businessmen, educators, clergy- 
men, and journalists to try to find some ways by which 



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• • THE BUSINESS CONSCIENCE • • 

business could help itself to improve its ethical perform- 
ance. I felt that the group might be able to explore some 
approaches to the development of ethical guidelines that 
could be useful to the business community. 

The Council concluded that it could best aid American 
businessmen, not by drafting a broad code for all busi- 
nesses, but by calling to the attention of businessmen the 
need for managerial soulsearching within each company 
and industry to devise specific ethical guidelines for the 
resolution of real problems. 

Since issuing its Statement, the Council has been en- 
gaged in conducting a program to implement its rec- 
ommendations. This involves working directly with 
business leaders, encouraging greater participation of 
leading religious groups in the improvement of business 
ethics, looking into the study of business ethics in our 
collegiate schools of business administration, and initiat- 
ing studies-in-depth of important and perplexing ethical 
problems that face the business community. 



A Statement on 
Business Ethics and a Call for Action 



The ethical standards of American businessmen, like those 
of the American people, are founded upon our religious 
heritage and our traditions of social, political, and economic 
freedom. They impose upon each man high obligations in 
his dealings with his fellowmen, and make all men stewards 



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• • THE BUSINESS CONSCIENCE • - 

of the common good. Immutable, well-understood guides to 
performance generally are effective, but new ethical prob- 
lems are created constantly by the ever-increasing com- 
plexity of society. In business, as in every other activity, 
therefore, men must continually seek to identify new and 
appropriate standards. 

Over the years, American businessmen in the main have 
continually endeavored to demonstrate their responsiveness 
to their ethical obligations in our free society. They have 
themselves initiated and welcomed from others calls for the 
improvement of their ethical performance, regarding each 
as a challenge to establish and meet ever higher ethical goals. 
In consequence, the ethical standards that should guide busi- 
ness enterprise in this country have steadily risen over the 
years, and this has had a profound influence on the perform- 
ance of the business community. 

As the ethical standards and conduct of American private 
enterprise have improved, so also has there developed a 
public demand for proper performance and a keen sensitivity 
to lapses from those standards. The full realization by the 
business community of its future opportunities and, indeed, 
the maintenance of public confidence requires a continuing 
pursuit of the highest standards of ethical conduct. 

Attainment of this objective is not without difficulty. Busi- 
ness enterprises, large and small, have relationships in many 
directions— with stockholders and other owners, employees, 
customers, suppliers, government, and the public in general. 
The traditional emphasis on freedom, competition, and pro- 
gress in our economic system often brings the varying 
interests of these groups into conflict, so that many difficult 
and complex ethical problems can arise in any enterprise. 
While all relationships of an enterprise to these groups are 
regulated in some degree by law, compliance with law can 
only provide a minimum standard of conduct. Beyond legal 
obligations, the policies and actions of businessmen must be 



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• • THE BUSINESS CONSCIENCE • • 

based upon a regard for the proper claims of all affected 
groups. 

Moreover, in many business situations the decision that 
must be made is not the simple choice between absolute right 
and absolutely wrong. The decisions of business frequently 
must be made in highly complex and ever-changing circum- 
stances, and at times involve either adhering to earlier stand- 
ards or developing new ones. Such decisions affect pro- 
foundly not only the business enterprise, but our society 
as a whole. Indeed, the responsible position of American 
business— both large and small— obligates each participant to 
lead rather than follow. 

A weighty responsibility therefore rests upon all those who 
manage business enterprises, as well as upon all others who 
influence the environment in which business operates. In the 
final analysis, however, the primary moral duty to establish 
high ethical standards and adequate procedures for their en- 
forcement in each enterprise must rest with its policymaking 
body— its board of directors and its top management. 

We, therefore, now propose that current efforts be ex- 
panded and intensified and that new efforts now be under- 
taken by the American business community to hasten its 
attainment of those high ethical standards that derive from 
our heritage and traditions. We urge all enterprises, business 
groups, and associations to accept responsibility— each for 
itself and in its own most appropriate way— to develop 
methods and programs for encouraging and sustaining these 
efforts on a continuous basis. We believe in this goal, we 
accept it, and we encourage all to pursue its attainment. 



246 



THE BUSINESS CONSCIENCE • • 



Some Questions for Businessmen 



The following questions are designed to facilitate the ex- 
amination by American businessmen of their ethical stand- 
ards and performance. They are intended to illustrate the 
kinds of questions that must be identified and considered by 
each business enterprise if it is to achieve compliance with 
those high ethical standards that derive from our heritage 
and traditions. Every reader will think of others. No single 
list can possibly encompass all of the demands for ethical 
judgments that must be met by men in business. 

L General Understanding: Do we have in our organization 
current, well-considered statements of the ethical principles 
that should guide our officers and employees in specific 
situations that arise in our business activities, both domestic 
and foreign? Do we revise these statements periodically to 
cover new situations and changing laws and social patterns? 

Have those statements been the fruit of discussion in which 
all members of policy-determining management have had an 
opportunity to participate? 

Have we given to our officers and employees at all levels 
sufficient motivation to search out ethical factors in business 
problems and apply high ethical standards in their solution? 
What have we done to eliminate opposing pressures? 

Have we provided officers and employees with an easily 
accessible means of obtaining counsel on and resolution of 
ethical problems that may arise in their activities? Do they 
use it? 

Do we know whether our officers and employees apply in 
their daily activities the ethical standards we have promul- 



247 



•• • THE BUSINESS CONSCIENCE • • 

gated? Do we reward those who do so and penalize those 
who do not? 

2. Compliance with law: Having in mind the complexities 
and ever-changing patterns of modern law and government 
regulation: 

What are we doing to make sure that our officers and em- 
ployees are informed about and comply with laws and regu- 
lations affecting their activities? 

Have we made clear that it is our policy to obey even 
those laws which we may think unwise and seek to have 
changed? 

Do we have adequate internal checks on our compliance 
with law? 

Have we established a simple and readily available pro- 
cedure for our officers and employees to seek legal guidance 
in their activities? Do they use it? 

3. Conflicts of interest: Do we have a current, well-con- 
sidered statement of policy regarding potential conflict of 
interest problems of our directors, officers and employees? 
If so, does it cover conflicts which may arise in connection 
with such activities as: transactions with or involving our 
company; acquiring interests in or performing services for 
our customers, distributors, suppliers and competitors; buy- 
ing and selling our company's securities; or the personal 
undertaking of what might be called company opportunities? 

What mechanism do we have for enabling our directors, 
officers and employees to make ethical judgments when con- 
flicts of interest do arise? 

Do we require regular reports, or do we leave it to our 
directors, officers and employees to disclose such activities 
voluntarily? 

4. Entertainment, gifts, and expenses: Have we defined our 
company policy on accepting and making expenditures for 



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• • THE BUSINESS CONSCIENCE • - 

gifts and entertainment? Are the criteria as to occasion and 
amount clearly stated or are they left merely to the judg- 
ment of the officer or employee? 

Do we disseminate information about our company policy 
to the organizations with which we deal? 

Do we require adequate reports of both the giving and 
receiving of gifts and entertainment; are they supported in 
sufficient detail; are they subject to review by appropriate 
authority; and could the payment or receipt be justified to 
our stockholders, the government, and the public? 

5. Customers and suppliers: Have we taken appropriate 
steps to keep our advertising and sales representations truth- 
ful and fair? Are these steps effective? 

How often do we review our advertising, literature, labels, 
and packaging? Do they give our customers a fair under- 
standing of the true quality, quantity, price and function of 
our products? Does our service as well as our product 
measure up to our basic obligations and our representations? 

Do we fairly make good on flaws and defects? Is this a 
matter of stated policy? Do we know that our employees, 
distributors, dealers and agents follow it? 

Do we avoid favoritism and discrimination and otherwise 
treat our customers and suppliers fairly and equitably in all 
of our dealings with them? 

6. Social responsibilities: Every business enterprise has man- 
ifold responsibilities to the society of which it is a part. The 
prime legal and social obligation of the managers of a busi- 
ness is to operate it for the long-term profit of its owners. 
Concurrent social responsibilities pertain to a company's 
treatment of its past, present and prospective employees and 
to its various relationships with customers, suppliers, govern- 
ment, the community and the public at large. These respon- 
sibilities may often be, or appear to be, in conflict, and at 
times a management's recognition of its broad responsibilities 



249 



• • THE BUSINESS CONSCIENCE • • 

may affect the amount of an enterprise's immediate profits 
and the means of attaining them. 

The problems that businessmen must solve in this area 
are often exceedingly perplexing. One may begin his reflec- 
tions on this subject by asking: 

Have we reviewed our company policies in the light of 
our responsibilities to society? Are our employees aware of 
the interaction between our business policies and our social 
responsibilities? 

Do we have a clearly understood concept of our obliga- 
tion to assess our responsibilities to stockholders, employees, 
customers, suppliers, our community and the public? 

Do we recognize and impress upon all our officers and em- 
ployees the fact that our free enterprise system and our in- 
dividual business enterprises can thrive and grow only to the 
extent that they contribute to the welfare of our country 
and its people? 



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